Two primary options exist for companies that want to grow or fend off competitors. They can move into new markets or acquire other companies. Global brands and products tend to move into new regions of service while technology firms tend to take the acquisition approach.
Rolling out the red carpet
Under Armour Inc (NYSE:UA) held its first investor conference in over two years last Wednesday. What was the big news? As expected, the specialty apparel maker announced its aggressive plan for global expansion. In two years, it may have more international offices than North American offices.
CEO Kevin Plank discussed how the Under Armour Inc (NYSE:UA) team has been “working like crazy” to make the opportunity a reality. The work seems like it will pay off quite well, too. Under Armour Inc (NYSE:UA) forecasts that it will reach over $4 billion in sales—doubling expected 2013 revenue. Perhaps even more impressive, though, is that the company already secured contracts and sponsorship deals with Olympic teams and professional athletes—directly attacking rivals NIKE, Inc. (NYSE:NKE) and Adidas.
Under Armour’s revenues increased 25% in 2012. Only 6% of the growth came from outside the North American market. According to the Wall Street Journal, 59% of NIKE, Inc. (NYSE:NKE)’s 2012 sales were outside of North America and 60% of Adidas’ sales were outside its headquarters in Germany. These are indicators that Under Armour can achieve its rosy estimates.
With lower EPS and a higher P/E ratio than its competitors, Under Armour Inc (NYSE:UA) may look overpriced. However, analysts are now expecting higher sales in coming years. Further, its new growth plan and marketing expenses “are expected to weigh heavily on earnings.” First, investors looking for high growth targets should consider Under Armour Inc (NYSE:UA). Once it is established globally, it may then shift toward paying dividends, like Nike and Adidas. NIKE, Inc. (NYSE:NKE) is already at a maturity point. Likewise, Adidas’ growth prospects are also extremely low compared to Under Armour Inc (NYSE:UA)’s, but it has a higher P/E ratio than Nike. Therefore, of the three, Adidas is the least favorable investment.
| Under Armour | Nike | Adidas | |
|---|---|---|---|
| P/E ratio | 52.19 | 24.16 | 31.31 |
| EPS | 1.14 | 2.57 | 2.6 |
As Plank said, going global is Under Armour’s “biggest opportunity.” I agree.
If you can’t compete…acquire
International Business Machines Corp. (NYSE:IBM) recently announced its plan to purchase SoftLayerTechnologies, the largest privately owned cloud-based computing infrastructure firm in the world. The hefty price tag of $2 billion may seem excessive. But, a second glance proves that International Business Machines Corp. (NYSE:IBM)’s decision could save the entire firm.
Amazon.com, Inc. (NASDAQ:AMZN)’s Amazon Web Services currently dominates the cloud computing space along with Microsoft Corporation (NASDAQ:MSFT)’s Azure cloud platform. IBM’s strategic purchase now enables it to move away from hardware and more costly services into a more sustainable, competitive position. In fact, International Business Machines Corp. (NYSE:IBM) is restructuring its entire cloud platform around SoftLayer Technology.
