Why I'm Happy With Under Armour Inc.'s Post-Earnings Plunge

When I woke up Tuesday morning, I was greeted with some fairly significant red ink courtesy of Under ArmourInc. . I'm a longtime shareholder and fan of the brand. So when Under Armour stock fell 5% after the athletic-apparel specialist announced first-quarter 2015 results, its negative affect on my portfolio was more than enough to elicit a small frown.

That is, at least, until I came to my senses and put things into perspective. In fact, I'm perfectly content -- happy, even -- with Under Armour's latest post-earnings plunge. But before we dive into why, let's talk about what Under Armour said to put the market into a tizzy.

The numbersIt wasn't Under Armour's actual first-quarter results. Quarterly revenue climbed 25% year over year (or 27% on a currency neutral basis) to $805 million, easily exceeding Wall Street's models for sales of $802.5 million. That translated to a 13% decline in net income to $12 million, or $0.05 per diluted share, which, to be fair, includes costs associated with its previously announced acquisitions of Endomondo and MyFitnessPal -- both calculated bets to capitalize on the burgeoning Internet of Things market through connected fitness. That earnings figure was also in line with analysts' expectations.

Source: Under Armour Investor Relations

In addition -- and keeping in mind this was Under Armour's 20th consecutive quarter of at least 20% top-line growth -- its strength was broad-based, including 21% growth in revenue from apparel to $555 million, a 41% increase in footwear sales to $161 million, and 23% from accessories to $63 million. Also of note: Higher-margin direct-to-consumer revenue grew 21% year over year and represented 25% of all sales. And international revenue grew 74% year over year to comprise just 12% of Under Armour's total.

So what's the problem? As many news headlines yesterday would have you believe, the market lamented Under Armour's "weak" guidance. Under Armour now expects 2015 revenue of roughly $3.78 billion, good for 23% growth over last year and a slight increase from its previous guidance for full-year sales of $3.76 billion. As it turns out, analysts were a tad overzealous in ignoring Under Armour's previous outlook, and instead were modeling slightly higher 2015 sales of $3.82 billion.

We've heard this song beforeGetting back to my odd stance of being happy with the decline, I felt a distinct sense of deja vu as I read the results.

Sure enough, this quarter's results, guidance, and subsequent reaction are all eerily similar to Under Armour's first-quarter 2014 report almost exactly a year ago. The ironic headline I chose that day: "Why Under Armour Inc. Crushed Expectations, Raised Guidance ... and Fell Anyway."

Then again, last year's first-quarter saw Under Armour also beat -- not "just" meet -- expectations for its bottom line. But the stock plunged 9% that day as skeptical investors weren't satisfied with its seemingly conservative sales forecast, which at the time called for 2014 sales of $2.84 billion to $2.87 billion. In retrospect they were right; Under Armour ended the year with 2014 sales of $3.08 billion.

But for opportunistic investors with time on their side, that turned out to be a great time to buy. In fact, I promised at the time if Under Armour stock continued to get punished over the short term -- and when The Motley Fool's trading restrictions were satisfied -- I would buy more shares of Under Armour stock in my personal portfolio. I did exactly that less than two weeks later. Even after yesterday's drop, those shares are still up more than 70%.

Now, don't get me wrong: That doesn't guarantee Under Armour stock will continue to rise over the near term, or that there won't be other pullbacks along the way. After all, Under Armour stocktraded sideways for the better part of the quarter after I bought my most recent stake. Then after a brief post-earnings pop this past July, shares were down moderately as recent as mid-January of this year. And as it stands, Under Armourlooksexpensive even after today's drop with shares trading at 88 times trailing-12-month earnings and 58 times next year's estimates.

Tuning it outBut we should also keep in mind that for investors who simply held through all the noise, Under Armour stock is still up 57% over the past year and 23% so far in 2015. If I've learned one thing holding Under Armour over the years, it's not to underestimate its ability to grow into those lofty valuations. Instead, by taking advantage of pullbacks to gradually build and hold positions in the world's best companies -- a group to which I firmly believe Under Armour belongs -- patient, long-term investors stand to reap the biggest rewards. As one of those long-term investors, that's why I'm happy to weather Under Armour's latest post-earnings plunge.

The article Why I'm Happy With Under Armour Inc.'s Post-Earnings Plunge originally appeared on Fool.com.

Steve Symington owns shares of Under Armour. The Motley Fool recommends Under Armour. The Motley Fool owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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