[Note: Under Armour’s FY’23 ended March 31, 2023]
Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, has declined by 24% year-to-date and currently stands at around $7. The company’s stock traded lower as the company’s growth slowed down due to a heavily promotional market in the North American retail segment. Under Armour reported a small profit in the first quarter (ended June) with gross margins still under pressure. The biggest issue remains the high inventory levels in the apparel retail sector. Under Armour ended the quarter with inventory at $1.3 billion, up 38% from prior year levels in Q1, though in line with expectations due to leaner inventories in 2022. Under Armour’s gross margins were around 50% after the Covid hit, but inventory pressures in the industry have driven margins down to 46.1% for the most recent quarter.
Outside of the retail issue in North America where sales are forecast to dip 3% to 4% this fiscal year, Under Amour is seeing a booming business. The Europe, Middle East, Africa, and Asia Pacific regions expect double-digit sales growth rates for FY’24. The company is guiding to improving margins for FY’24, but the number will be below the 50.3% levels of FY’21. The company goal is only for gross margins to rally 25 to 75 basis points from the 44.9% level of FY’23. It is likely that the UA stock price will rise as the new CEO gets inventory levels under control in the second half of the year and turns around the North American market. Innovations continue to drive the company’s growth, and it’s just a matter of time before these products take center stage.
Notably, UA stock had a Sharpe Ratio of -0.1 since early 2017, which is much lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
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We forecast Under Armour’s Revenues to be $6.1 billion for the fiscal year 2024, up 3% y-o-y. Looking at the bottom line, we now forecast earnings per share (EPS) to come in at 52 cents. Given our revenues and EPS forecast changes, we have revised Under Armour’s Valuation to $8 per share, based on a $0.52 expected EPS and a 15.6x P/E multiple for the fiscal year 2024. That said, the company’s stock appears very cheap at the current levels, with a potential almost 20% premium from the current market price.
It is helpful to see how its peers stack up. UA Peers shows how Under Armour stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-3%||15%||98%|
|Trefis Reinforced Value Portfolio||-6%||29%||563%|
 Month-to-date and year-to-date as of 8/29/2023
 Cumulative total returns since the end of 2016
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