Under Armour Inc (NYSE: UA) investors have enjoyed seeing the stock price increase by 22.8% over the last month. As a mid-cap stock with decent coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
What’s The Opportunity In Under Armour?
Under Armour appears to be overvalued by -22.3% at the moment, based on 9 separate valuation models. The stock is currently trading at $18.50 on the market compared to our average intrinsic value of $14.37. This means that the buying opportunity has probably disappeared for now.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$18.87||2.0%|
|5-yr DCF Revenue Exit||$20.96||13.3%|
|Peer Revenue Multiples||$16.17||-12.6%|
|10-yr DCF EBITDA Exit||$14.52||-21.5%|
|5-yr DCF EBITDA Exit||$14.04||-24.1%|
|Peer EBITDA Multiples||$7.71||-58.3%|
|10-yr DCF Growth Exit||$10.52||-43.1%|
|5-yr DCF Growth Exit||$7.13||-61.4%|
|Earnings Power Value||$19.40||4.9%|
Click on any of the analyses above to view the latest model with real-time data.
In addition to this, it seems like Under Armour’s share price is quite stable, which could mean two things. One, it may take the share price a while to fall back down to an attractive buying range, and two, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta of -0.25.
Can We Expect Growth From Under Armour?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
With EBITDA expected to grow on average of 33.6% over the next couple years, the future certainly appears bright for Under Armour. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Under Armour?
Under Armour has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their UA position for the time being.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Under Armour by taking a look at the following:
Valuation Metrics: what is Under Armour’s price to book ratio and how does it compare to its peers? Analyze Price / Book here.
Risk Metrics: what is Under Armour’s CapEx coverage? This is the amount a company outlays for capital assets for each dollar it generates from those investments. View the company’s CapEx coverage here.
Efficiency Metrics: inventory turnover is a ratio that measures the number of times a company’s inventory is sold and replaced over the year. View Under Armour’s inventory turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.