What’s Next With Under Armour Inc (UA)?

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Under Armour Inc (NYSE:UA) is giving tough competition to Nike Inc (NYSE:NKE). However, both are delivering better than expected earnings number for the most recent quarter. Under Armour is the most recent firm to report its earnings that came in above the Street expectations. At least for the four straight quarters, its earnings came in more than the expected levels. The company has been given the credit for being on the spot as far as accomplishments are concerned while the stock price remained perfect. However, there were some concerns about the margins that reflected in dragging down the stock. That raises a question as to what awaits next for the company and its stock.

No Problem As Long As It Maintains 25% Sales Growth

 Under Armour Inc (NYSE:UA) reported a gross margin of 48.8%, which was down from 49.6% in the year-ago quarter. However, that should not have led to pressing of a panic button by investors to drag the stock by 7% and at one point of time the drop was more than 10% on Thursday and Friday trading period. However, there are analysts who believe that there is no issue as long as the company delivers 25% plus sales growth. For instance, Buckingham analyst, Scott Krasik, said that there is little for downside risk to stock. However, he felt that the guidance for the fourth quarter, as well as, the next year was not inspiring at all. Therefore, he said that he would not recommend the stock for buying due to its lofty valuation currently. It has a rating of Neutral.

As far as Deutsche Bank analyst, Dave Weiner, is concerned, weak gross margins, as well as, the fourth quarter outlook were the reasons behind the recent sell-off of Under Armour Inc (NYSE:UA) shares. However, he sees that there are enough drivers like women’s International, footwear, and DTC. The brokerage believes that the company has the potential to reach the status of its rival Nike Inc (NYSE:NKE). Therefore, he maintained a rating of Buy on the company’s shares with a price tag of $110.

Impressed By High Growth Levels

Barclay’s analyst, Matthew McClintock, said that he was impressed by the wider, consistent, and increased level of growth. The brokerage has rated ‘Overweight’ and kept a price tag of $110 on Under Armour Inc (NYSE:UA) stock. On the other hand, Macquarie analyst, Laurent Vasilescu, pointed out the build-up in inventory of footwear as one of the unfavorable factors for the third quarter. However, he pointed out that the estimated footwear sales of approximately $600 million implied excessively conservative pricing projections. The brokerage preferred a Neutral rating and a price tag of $103 for the company’s stock.

Fundamentals Remain Intact

Brean Capital analyst, Eric Tracy, indicated that the fundamentals of Under Armour Inc (NYSE:UA) for long-term continued to remain positive. However, the stock might come under pressure in the immediate term as the market needs to digest the gross margin drop. Apart from that uncertainties cloud around the transition of COO and CFO. There are no other favorable catalysts to drive the stock higher in the near-term.

After the company disclosed the departure of its CFO and COO, Brad Dickerson, investors’ objective was to focus on the succession plan. The analyst said that there could be any number of strong candidates for the position. However, the key is to find a perfect fit for the company since the incumbent will be filling the big shoes.

Tracy said that inventory was not an unexpected one due to the rapid growth of Under Armour Inc (NYSE:UA). The analyst believes that sell-in for Spring season of 2016 footwear looks strong. Therefore, it was not unduly worried about the liquidation event. The brokerage reduced its price tag to $110 from $117 on the company’s shares. There is nothing to panic about the stock. It can come back with a bang.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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