On two occasions last year, Under Armour, Inc. (NYSE:UAA) came within pennies of recovering to the $10.00 level. In 2024, the third time may not only be the charm but also unleash an extra large comeback for the downtrodden active apparel marker.
The stock’s inability to reclaim $10.00 despite a plump Santa Claus rally stems from several challenges. First, amid sticky inflation and rising rates, Under Armour faced a compromised consumer spending environment for much of the year. Second, higher input costs, namely SG&A expenses, ate into margins. Meanwhile, rivals like Nike and Adidas addressed inventory build ups with price cuts, adding more pressure. The end result: weak year-over-year sales and profit comparisons.
Heading into 2024 though, there’s reason to believe Under Armour will overachieve. For starters, the company’s lower share price could lead to bigger percentage gains in an industry-wide rally.
Here’s five more reasons UAA can keep rebounding from its $6.29 September 2023 low and trade in the double-digits this year.
#1 - Q4 could be a blockbuster
When Under Armour reports fourth-quarter results next month, the market could be in for a blowout performance. Record Black Friday and Cyber Monday spending in the U.S. points to potentially strong physical and online retail sales. According to Adobe Digital Insights, a 7.3% uptick in November e-commerce sales was largely driven by $19.2 billion in apparel, second only to electronics.
And while it’s hard to say what sliver of this pie went to Under Armour, website traffic data suggests it was a significant slice. Global visits to underarmour.com spiked to 17.2 million in November 2023, a 57% jump from the prior year. Although big discounts and promotions likely drove the traffic, this bodes well for Under Armour’s direct-to-consumer (DTC) business.
#2 - Economic headwinds turn tailwinds in 2024
The same macroeconomic challenges that have plagued the company since 2022 could reverse in 2024. Inflation readings continue to cool and more of the same would provide relief to both American household budgets and Under Armour’s cost structure. A shift from rising interest rates to falling interest rates would also bolster disposable income levels and make shoppers more comfortable buying (full-price) Under Armour apparel and footwear.
#3 - Longer-term growth prospects are improving
Looking further down the road, Under Armour’s growth outlook may get less foggy as the year progresses. The key catalyst here is the DTC segment to which the company is devoting much of its resources. Company-owned stores and e-commerce grew 3% in fiscal Q2, partially offsetting a 1% decline in wholesale. With DTC now representing about 40% of total revenue, store count growth and effective technology investments will largely dictate the turnaround story.
New CEO Stephanie Linnartz is also focused on enhancing the brand image by offering more premium merchandise. Along with an expanded assortment of women’s clothing and footwear styles, restoring a premium reputation would allow Under Armour to raise prices and profits. A big push here is the recently launched ‘Live’ apparel line designed for everyday ‘off the field’ wear. Management sees Live tripling its market size to roughly $300 billion.
#4 - Shareholder value is improving too
After trading as high as 35x earnings in 2021, UAA’s valuation has been decimated. The stock currently trades around 10x trailing earnings — a reflection of the weaker financial performances but also an opportunity for patient investors.
Based on the consensus forecast for next year’s earnings (period ending March 31, 2025), UAA has a price-to-earnings (P/E) ratio of 14x. This is still well below the stock’s historical average and the forward P/E multiples of close industry peers like VF Corporation and Columbia Sportswear. If the value style of investing supplants growth in 2024, as some expect, UAA may become an attractive buy candidate.
Under Armour's value proposition has also been enhanced by its share repurchase program. Only $25 million remains on the current program, that expires next month, so an announcement of a new buyback authorization could give the stock a boost.
#5 - The chart is getting bullish
Shifting to the technicals, UAA recently notched a key moving average (MA) crossover. Late last month, the stock’s 50-day MA line crossed over the 200-day line — which is often a long-term bullish signal. If it can sustain support at the 50-day line (unlike after previous ‘life-cross’ events), UAA could enjoy a steady uptrend. An emerging trend line that extends from the July 2023 peak to the December 2023 peak will also be important to watch. A push to the $10.00 to $11.00 range would also add credibility to the uptrend and potentially set the stage for a bullish 2024 run.
