Why We Lowered Our Valuation For UA By 30%

by Trefis Team
+35.52%
Upside
15.79
Market
21.40
Trefis
UA
Under Armour
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Under Armour’s (NYSE:UA) stock has plummeted 30% in the last three months, as the company continues to witness a slowdown in operations globally. In Q4 2016, volumes were hurt on the back of a dismal apparel industry. Slower traffic forced the company to run its promotional activities earlier on in an attempt to boost sales. This, consequently, commoditized some of the more basic core products that had previously sold over the years. Additionally, higher demand for more lifestyle products left Under Armour out of balance with their assortment.

In October last year, CEO Kevin Plank had reiterated that revenue growth in 2017 and 2018 would be in the low 20% range – its slowest growth since 2009, but enough to meet its target of $7.5 billion in total sales by 2018. That said, Mr. Plank went on to say that earnings would fall short of its $800 million target by quite a bit as the company continues to vie for long term growth over short term gains. This news sent investors into a panic that triggered a massive sell off of the stock. However, the latest earnings release seems to have pushed things from bad to worse. The management now expects revenues to grow only in the 11-12% range for the coming year, almost half of what was expected by the company three months ago.

That said, we believe the market is judging the stock too harshly. In a future analysis, we will explain our rationale for the projected upside to the current market price.

Screen Shot 2017-03-10 at 4.43.50 PM

Some supporting factors are listed below:

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Under Armour

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