Under Armour: Should You Buy On The Pullback?

Shares of Under Armour (UA) have dropped by 21.8% from their 52-week high of $60.96 attained in September. Is now the good time to acquire the shares or will the pullback continue? In this article, I will elaborate on my valuation analysis that may assist you in formulating the investment decisions.

From a relative valuation perspective, UA continues to be overpriced based on the firm's financial performance relative to its peers' (see comparable analysis chart below). Sell-side analysts on average predict the company's revenue, EBITDA, and EPS to rise by 3-year CAGRs of 21.8%, 24.8%, and 26.6%, respectively, over the current and next 2 fiscal years. The consensus growth estimates are significantly higher than the averages of 7.6%, 16.9%, and 14.2% respectively, for a peer group consisting of UA's primary competitors in the sports apparel sector. However, the firm's EBITDA margin is forecasted to expand by just 1.0% over the same period, compared to the peer average of 1.6%. On the profit side, UA's margin and capital return metrics are mostly in line with the peer averages. The company carries a relatively low level of debt as reflected by its below-average debt-to-capitalization and debt-to-EBITDA ratios. In terms of liquidity, UA's trailing free cash flow margin is higher than the peer average, but the difference is not substantial. Due to the low leverage, the company was able to maintain a healthy interest coverage ratio. Both UA's current and quick ratios are above the par, reflecting a healthy corporate balance sheet.

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