Under Armour may have found itself in a bit of a rough patch, but the athletic wear company’s due could come in the next 12 months.
Between CEO Kevin Plank’s pro Trump statements that resulted in backlash from the brand’s top athletes, cutting its growth target for 2017 by half, and a so far lukewarm performance in its debut at Kohl’s, Under Armour has been in the news quite a bit of late, but not for much that’s all that positive.
Now, however, financial news site Barron’s is saying the company’s stock may be on the brink of a swell.
For one reason or another, investors aren’t keen on Under Armour’s stock. It’s been the worst performer in the Standard & Poor’s 500 index in the last year, according to Barron’s and it peaked 18 months ago at $53. Under Armour stock was down more than 2 percent to $19.34 in morning trading Monday.
One theory Barron’s has for Under Armour’s unfavorable stock performance is that it started out too expensive to begin with.
“On average over the past five years, Under Armour has traded at more than 50 times forward earnings projections,” Barron’s said. “It is only slightly less expensive on that basis now, but that is misleading, as earnings estimates have been slashed by half in a year. Sales are more telling, because they have been stabler.”
In its latest reported quarter ended Dec. 31, Under Armour’s North American sales grew 5.9 percent, while sales in its smaller international business jumped 55 percent. Revenues for the full year 2016 increased 22 percent to $4.8 billion.
This year, though, despite lowering its revenue growth target from 22 percent to 11 percent, Barron’s said Under Armour sales will grow at a double-digit pace in the coming years, while Nike will likely only see single-digit growth since Under Armour still has a wealth of markets left to tap.
“Contrarians who buy the stock here could make 30 percent or more in a year,” Barron’s said. “There is a caveat: Nike went through a remarkably similar slowdown 30 years ago, when it looked a lot like Under Armour does now. It obviously rebounded and went on to produce stellar gains for long-term holders. But its slump lasted years. Under Armour will have to step nimbly if it is to bypass the slow road to recovery.”
Under Armour still stands to benefit from expansion in its international sales, footwear sales and sales of women’s gear, which the company has been trying to do better with in recent years.
Barron’s said at present, Under Armour sells through 13,000 stores, compared to Nike’s 23,000. Its footwear only accounts for 21 percent of sales, compared to 61 percent at Nike and 39 percent at Adidas. Under Armour’s international sales are only 16 percent of its total compared to 50 percent for Nike and more than 80 percent for Adidas.
“The risk for investors who buy Under Armour shares now is that the company muddles through a long stretch of weak results and discomforting signals from management, in which case the stock could sag to $15,” Barron’s said. “But a bottoming of sales growth soon, followed by a return to peppier increases, looks more likely.”
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