Vonage Shorts Out, Underneath Armour Has Lofty Ambitions

Underneath Armour, Inc. (UAI) debuted on November 18, 2005 at $31. The maker of branded performance clothing is developing its manufacturer recognition via the use of hip manufacturer promotion that is trying to wrestle away interest from the traditional buyers of Nike (NKE)

Below Armour has targeted the youth and athletic marketplace where it competing with the established and strong Nike manufacturer. Underneath Armour includes a projected five-year annual earnings growth of 22.50% versus 14% for Nike. But around the valuation side, Underneath Armour is discounting in substantial premium development over that of Nike. Under Armour is trading at 46.19x its FY07 and a PEG of 2.75 versus 14.27x and a PEG of 1.06 for Nike. Clearly, Under Armour will need to perform to its lofty expectations going forward; otherwise, the stock will sell off. Nike can be a superior value play.

Vonage Holdings Corp. (NYSE/VG) debuted on Wednesday at $17, the mid-point of its estimated IPO pricing range of $16-$18. The provider of Voice above Internet Protocol (VoIP) is an early entrant to the rapidly growing region of VoIP and presently has about 1.6 million subscribers but the organization has yet to turn a profit. VoIP uses a broadband connection to make phone calls.

Higher advertising charges to acquire clients have hindered margins. Vonage could be the current leader due to its early entry in to the VoIP company but I see the organization facing a hard uphill climb as intense competition surfaces from main cable firms and the Skype service from eBay (EBAY)

The reality is Vonage has to invest extraordinary funds on acquiring buyers whereas for cable firms and eBay, there’s previously a considerable customer base to industry to. Vonage will soon realize this.

Hedge fund manager as well as the host with the hugely well-liked ‘Mad Money’ show on CNBC said Vonage is really a “piece of junk,” which I’ve to concur with. And with Vonage presently trading down at $13, the market might also view Vonage as above hype and not sufficient substance.

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