Under Armour – Moderate buy

Under Armour (UAA) is an iconic American sportswear manufacturer and distributor. I am bullish on the stock.

Argus Upgrade

Argus Research upgraded Under Armour to Buy from Neutral with the claim that the near-term pullback has provided investors with a lucrative entry point.

According to Kristina Ruggeri, who’s one of the firm’s analysts, “UAA has improved results by closely managing inventory, avoiding product discounting, focusing on premium products, and boosting direct-to-consumer sales. It has also strengthened marketing and implemented a restructuring program to lower costs.”

Efficiency

Assessing the firm’s efficiency from a bird’s eye view provided an interesting perspective.

Under Armour’s days inventory of outstanding ratio has decreased by approximately 11.49% during the past quarter. This means that the firm is selling its inventory much faster than it did in the past, subsequently avoiding stockpiling and inventory liquidation. In addition, Under Armour’s quarterly inventories have declined by roughly 7.29%, suggesting that the firm’s digitalization techniques allow for better supply-chain management; thus, better margins should be achievable.

Furthermore, Under Armour has experienced a 98% increase in year-over-year operating margins, which is quite remarkable considering the rising input costs that most companies have faced during the past year. The company’s improved margins can be coupled with a 204.5% annual increase in net income to form a conclusion that Under Armour’s investor residual has been bolstered in recent times.

Valuation

We’re looking at an undervalued stock here. UAA stock’s price to sales and price to cash flow ratios are undervalued by 12.77% and 49.92%, respectively. It’s always helpful to look at these two metrics because they’re difficult to manipulate by accountants and aren’t as susceptible to earnings volatility as certain other valuation metrics.

Wall Street’s Take

Turning to Wall Street, Under Armour has a Strong Buy consensus rating, based on 15 Buys and eight Holds assigned in the past three months.

The average Under Armour price target of $26.00 implies 46.4% upside potential.

Concluding Thoughts

Under Armour provides a good entry point at the moment. The firm is running itself very efficiently, and its stock is undervalued relative to its fair value.