Will Under Armour’s Recent Gains Be A Buying Opportunity?

by Trefis Team
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Under Armour
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Under Armour’s (NYSE:UAA) stock is up a massive 24% in the last one month, significantly outperforming the broader market which barely moved during this period. What is Under Armour doing right? Though sales are down significantly this year, earnings were a positive surprise driven by better than expected footwear revenue – especially the workout gear. But as the markets start normalizing, can Under Armour’s stock momentum continue? We look at historical stock movement, relative valuation, and the trend in the underlying financials, and conclude that Under Armour could be a good investment right now.

Past stock movement pattern:  Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 24% probability of Under Armour rising another 10% over the next 3 months. Compared to this, the chances of dropping -10% are significantly higher at 35%, making the stock 1.5x more likely to fall than rise for 10% amount in 3 months. That’s not good news, but 6-month duration tells a completely different story, with the chances of stock moving up 10% jumping 2x to nearly 49%. Check out our detailed dashboard that highlights the chances of Under Armour’ stock rising or falling to understand near-term return probabilities for different levels of movements.

Fundamentals tell us that Under Armour’s stock price decline is mostly Covid-attributed, rather than a pre-existing business weakness. Our dashboard Big Movers: Under Armour Has Climbed 22% In A Month – What Comes Next? lays this out.

Relative valuation: Under Armour’s stock price decreased -33% this year, from $21.60 to $14.46, before moving 6.29% last week, and ending at $15.37. At the beginning of this year, Under Armour’s trailing 12 month P/S ratio was 1.85. This figure decreased -59% to 0.76, before ending at 0.8. Compared to this, the figure for its peers Skechers, Nike, and Adidas stands at 1.0, 5.58, and 3.01 respectively, suggesting significant room for improvement for Under Armour.

Underlying financials: Under Armour’s stock price increased 49% between 2017 and 2019, and has increased 6.5% between 2017 and now.  The long-term trend is positive, suggesting a likelihood for continued rebound as the markets normalize. If we look at financial growth, we find that Under Armour’s revenue has increased 5.6% from $4,989 Mil in 2017 to $5,267 Mil in 2019, and net margins have increased from -1% in 2017 to 1.7% in 2019. For the last 12 months, revenue plummeted to $3,582 Mil, and so the stock price dropped. This gives us confidence that the stock recovery could be tied to demand recovery, making Under Armour a reasonable long-term bet.

Taking all perspectives together, we believe Under Armour could be worth investing in. Want to invest in a diversified portfolio instead? Check out our high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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