Why the sports apparel maker is one of the biggest shorts on the StreetIt's no wonder Under Armour (UA) is nicknamed "the next Nike (NKE)." Since going public in November, 2005, the sports apparel maker has captured the hearts (and dollars) of consumers and investors. Shares have more than quadrupled from the offering price of 13. Net income nearly doubled in 2006, to $39 million, on sales of $430 million.
But not everyone is a fan of the Baltimore company, which outfits the National Football League, the University of Maryland football team, and other top athletes in its high-tech performance gear. Hedge funds and others are betting the stock is headed for a fall: Some 7.1 million shares, or 25% of those available to the public, have been sold short, making it one of the biggest shorts on Wall Street.
The big worry is whether the company can keep growing at such a fast clip. Management, which declined to comment, figures it will continue to boost earnings at a brisk 20% to 25% a year. But skeptics think the company's aggressive expansion plans and rich valuations make the stock vulnerable.
The company has made its fortune by exploiting the niches largely overlooked by the biggest names in sports stuff, a strategy that helped propel it to BusinessWeek's Hot Growth list of America's 100 fastest-growing companies in 2006. When founder and CEO Kevin A. Plank started the business 11 years ago, he targeted professional athletes and serious fitness buffs, with a line of tight-fitting T-shirts made of a special material designed to keep active participants cool and dry during workouts and games. Under Armour now uses so-called synthetic compression fabric in everything from running suits to yoga pants, a clothing franchise it's expanding overseas. Today the company commands a 75% share of the $500 million performance apparel market, one of the fastest-growing and most profitable segments in sporting goods. "They have achieved great success without having to seek out [big-name] professional endorsements, which cost a fortune," says Marie Driscoll, an analyst at Standard & Poor's. "The word of mouth is phenomenal."
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