Cracks in Under Armour

Under Armour's UA success is remarkable.

The upstart company, which started in a garage 10 years ago and reached $430 million in sales last year, has the potential to be the Apple of athletic wear.

Much like the way Steve Jobs' company endeared itself to techies as it took on giants such as IBM and, later, Microsoft, Under Armour has gained a reputation for quality, performance and trendiness among serious athletes and teens alike, as it competes for market share against sector leader Nike NKE.

The sky is the limit, and the market has afforded it a price-to-earnings ratio to match. At 46 times consensus 2007 earnings of 95 cents per share, the stock trades at nearly two times its projected growth rate of 24%. Strong growth deserves a premium, and Under Armour is expected to deliver strong growth.

But while the company's apparel and football cleats are selling well, its first missteps may soon be visible. The company's baseball cleats have received mixed reviews, and a new analysis from channel-check research house Farmhouse Equity Research indicates that the shoes may not get the traction that its other products enjoy. Its fishing apparel line does not look like it will emerge as a category leader. Additionally, buyers at sporting goods retailers are expressing enthusiasm for Nike's new moisture-wicking T-shirt.

Swing and a Miss

According to Newport, R.I.-based Farmhouse, buyers for sporting goods chains are reporting some resistance by their customers to the high price of the baseball cleats. Some reported that the average high school athlete can't afford the higher-end shoe, while cleats offered by Nike, a more established baseball brand, don't pose a price issue.