Shares of Under Armour Inc (NYSE:UA, NYSE:UAA) have rebounded slightly since reporting better-than-expected first-quarter earnings. This is even though the Baltimore-based athletic giant still delivered its first-ever loss since going public in 2005. But what does that mean for UAA stock going forward?
UAA stock closed Friday at $19.09, up 1.49%. The shares have risen as much as 17% since falling to a 52-week low of $17.05, suggesting UAA stock has bottomed.
Much of the optimism was due to improved first-quarter profit margins, which topped the company’s own forecast by 30 basis points. This is a reversal from the trend that has punished Under Armour stock over the past year.
UAA Stock: Protecting This House
Under Armour stock rose 10% immediately following its earnings report. Chairman and CEO, Kevin Plank, said, “By proactively managing our growth to deliver superior innovative product, continuing to strengthen our connection with consumers and increasing our focus on operational excellence — we have great confidence in our ability to drive toward our full year targets.”
That’s the level of confidence investors were looking for and it suggests that Under Armour stock is now back to solid footing. Ahead of the quarter, UAA stock — down some 24% year-to-date and near 52-week lows — was under heavy selling pressure, thanks to falling revenue and profits margins. And while gross margin did decline 70 basis points to 45.2%, it was nonetheless 30 basis points better than the 100 basis-point decline the company forecasted.
The company’s inventory management efforts, which includes investments in direct-to-consumer sales, continue to pressure the bottom line in Q1. Meanwhile, the company’s continued investments in the footwear and in its international businesses offset margin gains made from channel and product mix. Nevertheless, the net loss of $2 million, or 1-cent per share, still topped consensus estimates of a 4-cent loss.
What’s more, the fact that Under Amour Management maintained its fiscal 2017 guidance of $320 million in operating profit and a marginal year-over-year decline in gross margin compared to the 46.4% it achieved in 2016, suggests not only more improvement going forward, but also UAA is not drastically losing to larger rivals Nike Inc (NYSE:NKE) or Adidas AG (ADR) (OTCMKTS:ADDYY).
Bottom Line for UAA Stock
As with several fast-growing companies, Under Armour has suffered growing pains. But UAA stock is not going to zero. And with shares now trading 55% below its 52-week high price of $42.94, Under Armour stock looks like a solid bargain for investors who are willing to be patient for the next 12 to 18 months. During which I expect the shares to rebound to $25, delivering 30% returns from current levels.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
