Earnings

Comparing Under Armour, Inc. (UA) and Canada Goose Holdings Inc. (GOOS)

Under Armour, Inc. (NYSE:UA) shares are down more than -6.46% this year and recently increased 4.27% or $0.51 to settle at $12.46. Canada Goose Holdings Inc. (NYSE:GOOS), on the other hand, is down -3.49% year to date as of 02/09/2018. It currently trades at $30.46 and has returned -14.92% during the past week.

Under Armour, Inc. (NYSE:UA) and Canada Goose Holdings Inc. (NYSE:GOOS) are the two most active stocks in the Textile – Apparel Clothing industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect UA to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, GOOS is expected to grow at a 17.52% annual rate. All else equal, GOOS’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Under Armour, Inc. (UA) has an EBITDA margin of 8.01%. This suggests that UA underlying business is more profitable

Cash Flow 




The value of a stock is simply the present value of its future free cash flows. UA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, GOOS’s free cash flow per share was -0.16. On a percent-of-sales basis, UA’s free cash flow was -0.55% while GOOS converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, GOOS is able to generate more free cash flow for investors.

Valuation

UA trades at a forward P/E of 47.92, a P/B of 2.62, compared to a forward P/E of 50.77, a P/B of 17.37, and a P/S of 7.89 for GOOS. UA is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. UA is currently priced at a -22.13% to its one-year price target of 16.00. Comparatively, GOOS is 2.87% relative to its price target of 29.61. This suggests that UA is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for UA and 1.70 for GOOS, which implies that analysts are more bullish on the outlook for UA.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. UA has a short ratio of 6.69 compared to a short interest of 1.76 for GOOS. This implies that the market is currently less bearish on the outlook for GOOS.

Summary

Under Armour, Inc. (NYSE:UA) beats Canada Goose Holdings Inc. (NYSE:GOOS) on a total of 8 of the 14 factors compared between the two stocks. UA is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, UA is the cheaper of the two stocks on an earnings, book value and sales basis, UA is more undervalued relative to its price target. Finally, HBI has better sentiment signals based on short interest.

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