Under Armour Inc (NYSE:UA) stock slid in Wednesday’s early trading on a fresh downgrade from Argus analyst John Staszak.
Staszak now has concerns about the company’s profitability. Notably, he believes that any effort on Under Armour’s part would likely require packing on more debt, and thus more in interest payments, which would hinder earnings growth. As a result, he downgraded UA stock to “Hold” from “Buy.”
Staszak also knocked down his earnings estimates for Under Armour. He now sees UA earnings 56 cents per share in fiscal 2016 and 74 cents in fiscal 2017, down from 60 cents and 78 cents, respectively. For comparison’s sake, the broader consensus estimates for those periods are slightly higher, at 58 cents per share this year and 78 cents next year.
This further muddies a rough year for once-growthy UA stock.
Under Armour is now barely in the black in 2016, a year that saw shares finally undergo a stock split to help alleviate the high nominal share price. That share price was an effect of UA stock storming some 460% between the start of 2012 and its peak in autumn 2015. Shares are now off about 20% from the late September/early October highs.
What’s holding Under Armour back this year?
Well, for one, shares were pinched by its late-July second-quarter earnings report. The company merely matched sales projections of $1 billion, and its penny in earnings per share fell 2 cents short of the consensus estimate. Those results were bogged down by Sports Authority’s liquidation sales.
Sure, UA is on pace to grow sales 24% year-over-year for the full year. But the growth prospects still aren’t as robust as they once were, making it increasingly difficult to justify a sky-high valuation. Before Wednesday’s slight decline, shares were trading at more than 50 times next year’s expected earnings.
Under Armour stock opened Wednesday’s trading down 2%.
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