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150 Million Reasons to Bet on Under Armour's Connected Fitness Growth

Under Armour's Record app. Photo: Under Armour.

The future of this space looks huge, as the market for digital health products is expected to reach $120 billion by 2020. For its part, Under Armour plans to reach $200 million in Connected Fitness revenue by 2018, which seems like a reasonable goal given the size of the market. There are also other ways that Under Armour could benefit from its huge community.

  • International growth: Under Armour is using its recently acquired Endomondo app, which around half of the adult population in Denmark has downloaded, to introduce that community to Under Armour gear. If successful, this could be repeated in other international markets with local fitness communities, where Under Armour could tap the digital fitness trend to sell more apparel.

  • Segment growth: Connected Fitness will also help Under Armour grow specific segments like basketball and running. As a part of its partnership with the NBA, Under Armour is creating the "NBA Fit" app, which will integrate the UA Record app for basketball players and coaches and help to promote UA basketball gear. For serious runners, Under Armour's MapMyRun app has a feature that helps runners track the amount of miles ran in a particular pair of shoes and alerts them when it's time to buy new shoes including recommendations and links to buy UA running shoes.

  • Connected clothing: "If we believe that our future is going to be defined by these hard pieces of glass or plastic that sit in our back pockets, you're crazy," Under Armour CEO Kevin Plank said. "It is going to convert into apparel." And if 50 billion retail items will have a connected chip within five years, this leads us to believe the company is still very much working in this space of connected devices and clothing, and having such a large fitness community will make selling those products much easier.

The capital expenditures in 2015 to make these acquisitions and investment in the space have put pressure on Under Armour's earnings, which in the most recent quarter decreased 13% year over year. However, this earnings decline shouldn't be too much of a concern since the investment has paid off so well in such a short amount of time as seen by the surge in number of users.

The Under Armour connected fitness growth timeline. Photo: Under Armour, from its September 2015 investor day

Time to bet?

"No sign of weakness at Under Armour," says Sterne Agee footwear and apparel analyst Sam Poser. "We would use any decline in the stock price as a buying opportunity."

For now, Under Armour seems to be firing on all cylinders, despite a 20% decline in its stock price since the middle of October. It's for this reason that I believe the sell-off presents a rare opportunity to invest in a great and growing company at a comparatively reasonable price.

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The article 150 Million Reasons to Bet on Under Armour's Connected Fitness Growth originally appeared on Fool.com.

Bradley Seth McNew owns shares of Nike and Under Armour. The Motley Fool owns shares of and recommends Nike and 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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