Since May 12 shares of Under Armour Inc (NYSE:UAA, NYSE:UA) have gained as much as 23%, climbing from $19.09 to a recent high of $23.46. Recall that May 12 was then I told you that UAA stock, which had fallen to a 52-week low after the sportswear maker delivered its first-ever loss as a public company, had bottomed. I was right.
Here’s what was clear to me: As with several fast-growing companies, Under Armour has suffered growing pains. But I knew the stock wasn’t going to zero.
As long as “buy low, sell high” remained a sound strategy, it presented a solid buying opportunity.
To be sure, UAA stock is not the slam-dunk bargain it was correctly predicted a month ago. Still, these shares can be expected to rebound to $25 in the next 12 to 18 months, delivering a nice return to investors who are willing to be patient.
Reasons to Like Under Armour
Under Armour stock closed Tuesday at $22.95, climbing to five-month highs. In fact, since the NBA playoffs began in mid-April, the shares have caught fire. The stellar performance from the company’s top endorser, Stephen Curry and his Golden State Warriors — which just knocked rival Nike Inc’s (NYSE:NKE) LeBron James from his throne — was a huge factor in the stock’s rally.
Investors are betting on Under Armour to overcome increased competition from Nike and adidas AG (ADR) (OTCMKTS:ADDYY) to deliver a strong second half this year.
Stephen Curry’s championship and his new line of sneakers will be major factors. Curry, 2016’s unanimous NBA MVP, first sported his newest shoes, Curry 4, several weeks ago. The shoes, which Curry (intentionally or otherwise) stopped to tie in front of the press after the final game, caught a massive social media wave as fans flooded Twitter with tweets like “best Curry shoe.”
It also doesn’t hurt that Wall Street analysts, including SunTrust Robinson Humphrey, predicted that the Curry 4 would be smashing success.
“We are very encouraged by positive initial buzz (of the Curry 4)”, wrote analyst Pamela Quintiliano earlier this month. Adding that the shoe will prove to be a successful second-half “catalyst that should provide a halo effect to other footwear classifications as well as apparel.”
Wall Street will have to wait for Under Armour to report its next earnings and issue guidance to gauge how well the shoe has done or will do over the next couple of quarters. But with UAA — despite the recent 20% climb — still down 22% year to date and 40% over the past year, now is the time to place a bet that the Baltimore-based athletic apparel maker is ready to make another run and post new highs.
Looking ahead towards the quarter that ends this month, Under Armour is expected to deliver a loss of 6 cents per share, while revenue of $1.08 billion show a 7.7% increase year over year.
With the company fresh off a first-quarter report that showed improved profit margins, which topped the company’s own forecast by 30 basis points, Under Armour, thanks to the improved fundamental metrics, could surprise with narrower loss or a profit.
Bottom Line for UAA Stock
Under Armour appears to now be on solid footing. Plus, the company last quarter 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. Inventory management efforts, which includes investments in direct-to-consumer sales, will eventually pay off.
With plans to strengthen its connection with consumers while increasing its focus on operational efficiencies, UAA stock should be owned, not traded.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
