Under Armour Financial Analysis Paper

From : Adam, Under Armour Junior Analyst
To : Kevin A. Plank, Under Armour Chairman, President, and CEO
Date : December 18, 2011
Subject : Under Armour’s Strong Financial Performance from 2008 to 2010
In order to help Under Armour acknowledge its position within the sport apparel and gear industry, I researched and constructed an analysis of the company’s financial performance from 2008 to 2010. Over the last three years, Under Armour posted a strong financial performance. From 2008 to 2010, the company had a significant growth in net income, an increasing trend in earning per share, and a strong quick ratio (Under Armour, 2011). In addition, Under Armour’s stock (UA) has also been performing well in the last twelve months; however, the Price Earnings ratios over the period were unstable due to the rough stock price-line (Stock Information, 2011). Furthermore, the report will compare Under Armour with one of its main competitors, Nike, Inc. (Under Armour, 2011).
Under Armour’s Financial Performance
Significant Growth in Net Income
Over the last three years, Under Armour’s (UA) net income has grown significantly.
From 2008 to 2009, UA’s net income increased 22.4 percent from $38 million to $47 million (Under Armour, 2011). Following that trend, the company’s net income grew 46 percent to $68 millions in 2010 from $47 millions in 2009 (Under Armour, 2011). Compared to Under Armour, from 2008 to 2009, Nike Inc.’s net income experienced a larger increase, 28.2 percent; however, it increased only 11.8 percent from 2009 to 2010 (Nike, 2011). As illustrated in figure 1, although Under Armour’s net income performed poorer comparing to Nike in 2009; the company’s 46 percent increase in net income outperformed Nike’s, which was only 11.8 percent in 2010 (Under Armour, 2011; Nike, 2011). The sturdy increase in UA’s net income led to an increasing trend in the company’s earnings per
share.

Figure 1: Comparison Between Under Armour’s and Nike’s Net Income Growth
Note: Data collected from Under Armour annual report and Nike, Inc. annual report

Increasing Trend in Earning Per Share
As Under Armour’s net income grew, the company’s earnings per share (EPS) also showed an increasing trend over the last three years. In 2009, the EPS increased 20.5 percent to $0.94 per share from $0.78 per share in 2008; furthermore, it grew 43 percent to $1.35 per share in 2010 (Under Armour, 2011). This increasing trend in EPS helps to ensure its investors’ confidence in the company’s financial performance. In addition to the growing trend in EPS, Under Armour also appears to be a very sturdy operation by its strong quick ratio.

Strong Quick Ratio
Under Armour assures investors’ confidence even more by showing a very strong quick ratio in the last three years. In 2008, UA held the quick ratio of 1.3, which already met its investors’ expectation (Under Armour, 2011). Furthermore, the company’s quick ratio was even higher than 2.0 in 2009 and 2010, which are 2.2 and 2.1, respectively (Under Armour, 2011). For that reason, the market showed a very positive response on UA’s financial performance over the last three years.
Market’s Response
Acceptable increase in Under Armour’s Stock Price Comparing to Nike’s Stock
Within the last twelve months, Under Armour’s stock (UA) price experienced some declines; however, the overall increase was acceptable. UA’s last closing price on December 16, 2011 was $74.13 per share (Under Armour - Stock Information, 2011). The price was 9% higher than it was six months ago, which was $68.02 per share; and 32 percent higher than $56.11 per share, which was the price of one year ago (Under Armour - Stock Information, 2011). In addition, figure 2 shows the very different between UA and Nike’s stock (NKE) in the last twelve months. NKE also experienced some declines; however, the overall performance was not as good as UA’s since NKE increased only 4.7 percent over the year of 2011 (Nike, Inc. – Stock Information, 2011). Due to the stock’s rough price-line, Under Armour also practiced an unstable trend in P/E ratio.

Figure 2: Comparison Under Armour’s and Nike’s Stock Price 2011
Note: Data retrieved from Under Armour Stock Information and Nike Stock Information

Unstable Price-Earnings Ratio
In 2011, Under Armour’s Price Earning ratio was very high but unstable due to the irrelevant growth trend of the company stock price. Over the year, UA’s Price Earnings ratio was 47.8 in March, went up to 52.9 in June, and dropped down to 45.2 in September (Under Armour, 2011). Hence, Under Armour’s P/E ratio was much higher than Nike, Inc.’s, which managed its P/E ratio to be 17.9, 20.5, and 19.5 in March, June, and September, respectively (Nike, Inc., 2011).
References
Nike, Inc. (2011). Nike, Inc. Annual Report 2011. Retrieved from http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Annual-Reports/default.aspx
Stock Information. (2011). Investor Relations – Under Armour. Retrieved from http://investor.underarmour.com/stockquote.cfm
Stock Information. (2011). Investor – Nike, Inc. Retrieved from http://investors.nikeinc.com/Investors/Stock-Information/Historical-Price-Lookup/default.aspx
Under Armour (2011). Under Armour annual report 2011. Retrieved from http://investor.underarmour.com/annuals.cfm