Top Trading Ideas/RV: Short Under Armour (Long Lululemon, Nike)
Under Armour has become one of the most expensive apparel companies in the world selling at tweeter-like valuation levels. Although the company is growing furiously, it is selling on 3x sales, 45x earnings, 22x ebitda and 8 times book value (all on 2015 estimates). The company announced better than expected numbers late January and the stock was up almost 25% on the news, reaching a market value of $11bn.
Under Arnour manufactures performance apparel. As a hedge to the short UA position, we recommend going long Lululemon. LULU is a designer and retailer of athletic products, in particular targeted at the yoga market. The stock is an ex market darling. It was IPOed in July 2007 $9/sh. The stock quickly rose to almost 30 to fall to less than $3 post 2008 crisis. It then rose from under $3 in 2009 to more than $80 in mid-2013. Since then, the company announced disappointing earnings and the stock is down to $44.60. However, Lululemon has some of the highest margins in the sector, almost comparable to the luxury sector. It should resume strong growth next year and beyond.
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