After Earnings, Is Under Armour Stock a Buy, a Sell, or Fairly Valued?

Under Armour UA/UAA released its fiscal first-quarter 2025 earnings report on Aug. 8. Here’s Morningstar’s take on Under Armour’s earnings and stock.

Key Morningstar Metrics for Under Armour

• Fair Value Estimate: $14.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Under Armour’s Earnings

• Under Armour’s results were nothing special in the quarter. Sales fell 10% and the firm saw adjusted earnings per share of only $0.01. However, these results were better than expected in a tough sportswear market.
• Investors hope the firm is poised for a turnaround since co-founder and controlling shareholder Kevin Plank has returned as CEO. Plank has pledged to simplify the business and restore the brand’s value after years of inconsistent sales and profits.
• The company’s full-year guidance for fiscal 2025 was underwhelming. Given the lead times for new merchandise and recent management changes, better results may not come before fiscal 2026.
• We do not award Under Armour a moat, but we expect improving results starting in fiscal 2026 as its plans for product elevation, pricing, the supply chain, and marketing take effect.
• The firm has been in turnaround mode for around eight years, but it has a solid balance sheet and remains profitable.

Fair Value Estimate for Under Armour

With its 5-star rating, we believe Under Armour stock is undervalued compared with our long-term fair value estimate of $14. Plank attributed the firm’s soft outlook to weak wholesale orders and planned reductions in merchandise offerings. He intends to focus on Under Armour’s core men’s apparel, North America, cost efficiencies, store operations, and reducing discounting, but these efforts will likely be slow. We forecast $0.22 in adjusted EPS in fiscal 2025, down from $0.54 in fiscal 2024. Our fair value estimate implies a fiscal 2025 P/E ratio of 64 and an EV/EBITDA ratio of 23.

Read more about Under Armour’s fair value estimate.

Economic Moat Rating

We do not believe Under Armour has a moat, as we think it lacks the resources to overcome the competitive pressures and industry trends that have hurt its market position over the past few years. The firm’s adjusted returns on invested capital including goodwill have averaged 9.4% over the past five fiscal years, below our estimated weighted average cost of capital of 10.4%. While we estimate its adjusted ROIC including goodwill will exceed its weighted cost of capital at an annual average of 13% over the next decade, we do not have confidence it will generate economic profits for more than 10 years.

Read more about Under Armour’s economic moat.

Financial Strength

We believe Under Armour has ample liquidity to get through the current economic environment. As of the end of March 2024, the firm had $859 million in cash and $1.1 billion in borrowing capacity. Meanwhile, its long-term debt is limited, consisting of roughly $600 million in 3.25% senior notes that mature in June 2026. We anticipate the company will operate in a net cash position.

Read more about Under Armour’s financial strength.

Risk and Uncertainty

Our Uncertainty Rating for Under Armour is High. The firm has struggled with inconsistent results for years, but it remains profitable and typically operates in a net cash position. It’s exposed to weakness in US physical retail. Many US retailers are closing stores or going out of business, including some sporting goods chains, as sales shift to digital and discount channels. For example, in 2016, nationwide sporting goods chain Sports Authority went bankrupt and closed all its 450 stores. More recently, Under Armour’s sales have been negatively affected by inconsistent demand and ordering patterns from third-party retailers.

Read more about Under Armour’s risk and uncertainty.

UA/UAA Bulls Say

• Controlling shareholder Kevin Plank recently returned as CEO and intends to focus on core men’s performance apparel, faster product development, less discounting, and North America.
• Under Armour has cut $200 million in average annual costs through past restructurings, and it continues seeking ways to operate more efficiently.
• Under Armour operates in a net cash position and recently authorized a three-year, $500 million share repurchase plan.

UA/UAA Bears Say

• Under Armour has gone through years of restructuring and strategic plans and has yet to achieve stability.
• Inflation, weak wholesale orders, and inconsistent consumer spending on activewear have impeded Under Armour’s turnaround efforts, especially in North America.
• We expect much of Under Armour’s growth to come from international markets where the brand is little-known. It may struggle to compete in China, the world’s second-largest sportswear market.

This article was compiled by Krutang Desai.