Under Armour, Inc. (UAA) manufactures branded athletic performance apparel, footwear, and accessories globally. However, it has an ISS Governance QualityScore of 10, indicating a relatively high governance risk. UAA is headquartered in Baltimore, Md.

The company benefited from the industry tailwinds to deliver better-than-expected revenue and earnings in its last reported quarter. However, shares of UAA have been foundering over the past six months due to rising concerns regarding UAA’s high valuation and growth prospects amid increasing coronavirus cases. 

The stock has slumped 17.5% in price over the past month and 8.1% year-to-date.

Here is what could shape UAA’s performance in the near term:

Mixed Growth Prospects

Analysts expect UAA’s revenues to increase 4.7% in its fiscal year 2021 fourth quarter (ended December 2021), 4.6% in its fiscal 2022 first quarter (ending March 2022), and 8.3% in the next quarter (ending June 2022).

However, consensus EPS estimates indicate a 46.6% decline in the about-to-be-reported quarter and a 9.9% decline in its fiscal 2022 second quarter. Nonetheless, the Street expects the company’s EPS to improve 8% year-over-year in the current quarter and at a 27.8% rate per annum over the next five years.

Higher-than-Industry Profit Margins

UAA’s 50.24% trailing-12-month gross profit margin is 39.8% higher than the 35.94% industry average. Its net income and levered free cash flow margins of 7.82% and 10.32%, respectively, are significantly higher than the 6.56% and 5.78% industry averages.

In addition, the company’s 25.22%, 9.02%, and 9.69% respective ROE, ROA, and ROTC compare with the 17.23%, 5.94%, and 7.54% industry averages.

Stretched Valuation

In terms of forward non-GAAP P/E, UAA is currently trading at 25.53x, which is 79.5% higher than the 14.22x industry average. And its 1.02 forward non-GAAP PEG multiple is 6.8% higher than the 0.96 industry average.

In addition, the stock’s 1.65 and 24.52 respective forward Price/Sales and Price/Cash Flow ratios compare with the 1.18 and 13.02 industry averages. And UAA’s 13.95 forward EV/EBITDA multiple is 32.7% higher than the 10.52 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of  17 Wall Street analysts that rated UAA, 13 rated it Buy, while three rated it Hold and one rated it Sell. The 12-month median price target of $31.75 indicates a 63.1% potential upside from yesterday’s closing price of $19.47. The price targets range from a low of $19.00 to a high of $39.00.

POWR Ratings Reflect Uncertainty

UAA has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

UAA has a C grade for Momentum and Value. The stock is currently trading slightly below its 50-day and 200-day moving averages of $23.16 and $22.29, respectively, indicating a downtrend, and in sync with its Momentum grade. In addition, the stock’s forward 1.02 non-GAAP PEG ratio is slightly higher than the 0.96 industry average, justifying the Value grade.

Of the 37 stocks in the Athletics & Recreation industry, UAA is ranked #17.

In addition to the grades I have highlighted, view UAA ratings for Growth, Sentiment, Stability, and Quality here.

Bottom Line

Analysts expect retail sales to slow in 2022 due to a lack of stimulus and global supply chain disruptions. Furthermore, the rising omicron cases globally and new travel restrictions are expected to adversely impact UAA’s financials in the current quarter. Thus, we think investors should wait until the macroeconomic headwinds subside before investing in UAA.

How Does Under Armour, Inc. (UAA) Stack Up Against its Peers?

While UAA has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Johnson Outdoors Inc. (JOUT), OneWater Marine Inc. (ONEW), and Columbia Sportswear Company (COLM), which have a B (Buy) rating.

Note that COLM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

UAA shares fell $19.47 (-100.00%) in premarket trading Wednesday. Year-to-date, UAA has declined -7.55%, versus a -0.63% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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