Is the Under Amour Stock Price Driven By Current Earnings or Sentiment?

June 17th, 2016 by Trefis Team
-12.84%
Downside
8.71
Market
7.59
Trefis
UA: Under Armour logo
UA
Under Armour

The Price to Earnings ratio gives us the ability to judge whether a stock is fairly priced or not. In this analysis, we will use the PE ratio to estimate whether Under Armour’s stock price is driven by current earnings or by sentiments, i.e. expectations of future earnings by the current PE ratio of the company to that of the industry’s.

Screen Shot 2016-06-17 at 2.54.20 pm

The difference of $23.25 is a premium that one is willing to pay in expectation of future growth. In a previous analysis, we have estimated that almost 61% of the stock price is influenced by future expectations of earnings growth.  You can view this analysis here.

Possible Supporting Arguments:

  • Under Armour is currently riding an exceptional growth wave that has lasted many quarters now. Just last quarter, the company reported a 30% increase in revenues overall.
  • Apparel, the biggest revenue magnet for the company, has grown at a CAGR of ~27% since 2010. Currently, the momentum in the segment is largely driven by growth in training and golf.
  • Footwear is the “underdog segment” of the company. In a market dominated by Nike and Adidas, footwear sales have soared steadily at a CAGR of a staggering ~40% since 2010. The increased revenues are primarily driven by the Curry line of shoes made famous by NBA All-Star Stephen Curry. This, and many other such strategic endorsements will continue to boost revenues in the future.
  • Connected Fitness is all set to make a bold step into the ever evolving wearable technology market. The user base on the app has been increasing at a rate of a million subscriptions a week. Growth in the segment is expected to be spurred on by increased acquisitions and further innovations.
  • Additionally, almost 88% of the sales last year came from the local U.S. market, thereby keeping the  company safe from the adverse effects of the strengthening dollar, slowing economies of China and pressures in Europe.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for Under Armour

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