Betting on UAA Stock: Winner or Loser?

A fundamental deep-dive says Under Armour is in need of major change

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Under Armour, Inc. (NYSE:UAA) is a major American sports, footwear, and apparel brand. The company operates its business internationally with headquarters in North America, South America, Europe and Asia. UAA had seen massive declines even before the pandemic, but the company has sunken much deeper since the COVID-19 outbreak began earlier this year. Under Armour is down about 32% year-to-date despite doubling off its May 14 multi-year lows of $7.15. Furthermore, on Oct 30 before the open, the company will report quarterly earnings.

Under Armour has a current market cap of $6.04 billion and a book value of $3.13 per share. Its price-to-book ratio stands at 4.15. The company has a trailing price-earnings ratio of 66.25 and a forward price-earnings ratio of 86.96

As far as earnings reports go, Under Armour has beat expectations on two of its four most recent quarterly earnings reports. In its most recent quarter, the company beat the target by $0.10. Under Armour reported a loss -$0.31 instead of the anticipated -$0.41.  As for the company's upcoming earnings report, Under Armour is expected to report an EPS of $0.01 and reverse the company’s downward trajectory.

In the first quarter of 2020, Under Armour reported a miss of $0.16 in EPS. The company reported an EPS of -$0.34 instead of its expected -$0.18. In the fourth quarter of 2019, Under Armour met expectations at $0.10, and in the third quarter of 2019, the company beat expectations by $0.05 with an EPS of $0.23. The company has a trailing 12-month EPS of -$1.51.

Under Armour has grown its revenue annually since 2016. In 2017 and 2018, the company grew its revenue by $200 million and $150 million, respectively. Under Armour's revenue has fallen drastically this year. The company has a trailing 12-month revenue of $4.5 billion, which is more than $700 million short of what it had produced by the end of 2019.

Under Armour’s net income has been largely inconsistent over past four years. In 2016, Under Armour had one of its best years with $257 million in net income, but then had two straight subsequent years of net losses totaling over $46 million each year. In 2019, the company recovered with a net income of $92 million. As for 2020, Under Armour is currently having one of its worst years ever, with $686 million in net losses over the past 12 months. Under Armour has $1.08 billion in cash and $2.28 billion in total debt on its balance sheet.

Overall, the company doesn’t boast a good balance sheet or consistent profits, and is not very fundamentally sound on paper in general. Under Armour's most redeeming factor is its revenue production. However, the drastic shifts between profitability and net losses indicate the possibility of poor management. The pandemic is unlikely to be the primary cause of UAA stock's falling price; instead its only accelerated the process and demonstrated how unprepared Under Armour had been in case of emergency. Serious change needs occur within the company before investors consider UAA stock for their portfolios. At the moment UAA stock is too much of a risk, despite its bargain-basement pricing.

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