Morgan Stanley: It's Hard Not To Like Under Armour's Story

• The share price of Under Armour, Inc. UA has increased 51.27 percent, year to date.
• Morgan Stanley’s Jay Sole has maintained an Equal-weight rating on the company.
• Under Armour’s analyst day has increased Sole’s confidence in the company becoming the number two athletic soft goods provider in the world, although the good news appears to be priced into the stock.

According to the Morgan Stanley report, “Heavy investments likely limit EBIT margin growth near-term, but we expect these to deliver strong returns over time.”

The company has raised its sales target for 2018, from about $6.8 billion to $7.5 billion, which Sole believes is indicative of Under Armour’s international potential, while mentioning, “UA is driving this growth by making substantial progress in each of the areas it has been talking about for years.”

However the guidance indicates an increase in SG&A expenses and capex through 2018 due to the ongoing footwear and international buildouts, as well as R&D and marketing expenses. “New IT systems, corporate offices, and distribution centers are major contributors to this increase,” the report said.

However, this increase in expenses should be a major cause for concern, since, according to Sole, Under Armour has proven that it “invests wisely. The company expects to achieve $200 million in direct sales by 2018 from its recently acquired apps.

“UA has a remarkable 20-year investment decision track record. We don't think the time to start doubting its capital allocation choices is now,” Sole stated.

According to Sole, if the stock grows in-line with the company’s EPS, it would outperform most of its peers in the near term, a situation that has high probability of occurring.