How does the old saying go? A picture is worth a thousand words? If that’s the case for companies (and it is), then current and would-be shareholders of Under Armour Inc (NYSE:UA, NYSE:UAA) are about to get an eyeful of perspective on what the future may hold for Under Armour stock. These four charts paint a rather vivid picture of where the company was and is going.
A word of warning and encouragement — there’s good and bad news packed into these images; the reality for UA stock is wedged somewhere in between.
UA: Revenue and Earnings Per Share Trend
There’s no denying Under Armour is a cyclical business, surging in the third calendar quarter of every year and then tapering off for the next three. Each subsequent quarter has been better than the year-ago quarter for several years now, and more of the same is predicted for the next several quarters.
To quantify the trend, earnings-per-share of UAA stock are expected to reach 59 cents this year, up from last year’s 54 cents and projected to roll in at 68 cents per share next year.
Fueling that per-share profit growth, among other things, is the company’s recent deal to supply Major League Baseball’s team jerseys. That deal also provides retail rights to sell team-themed apparel to fans.
UA Stock: Profit Margins Not Keeping Pace
As impressive as revenue as well as per-share earnings have grown over the course of the past several years, income has failed to expand in step with the company’s top line. Indeed, they’ve actually moved in the wrong direction … and there wasn’t much wiggle room to begin with.
To be clear, Under Armour is still turning a profit. If the trajectory of decreasing margins isn’t reversed soon though, trouble could surface.
The question is, if margins haven’t started to improve yet, what would cause them to turn around now? Indeed, the company seems increasingly willing to spend whatever it takes to continue signing celebrity endorsers and high-profile sponsorships. Case in point: The company just committed $280 million for the next ten years to affiliate not with a sports star, but a college. That one follows a couple of $90 million college sponsorships. That’s a lot of money for brand placement that may or may not decisively drive new sales.
Under Armour may be addicted to big-ticket sponsorships, and now can’t stop using them in fear of pulling the rug out from underneath sales growth.
Analysts Increasingly Dislike UAA
In their defense, analysts gave Under Armour stock the benefit of the doubt for as long as they could, maintaining a mostly bullish opinion as long as they could. As of October though — at the same time UA stock plunged after its Q3 numbers were posted — those professional stock-pickers decided enough was enough.
A bunch of them decided they finally had to start voicing their doubts that the company would ever turn enough of a profit relative to revenue. Their collective ratings on UAA stock fell to just between a “Buy” and a “Hold,” (the lowest rating in nearly two years), and their collective price target for Under Armour stock slumped to a new 52-week low of $37.85.