On Friday, BMO (TSX:BMO) Capital Markets adjusted its outlook on Under Armour (NYSE:UA), Inc. (NYSE:UAA) shares, reducing the price target to $10 from $12, while maintaining an Outperform rating.
The firm's stance reflects a belief in the company's long-term brand and profit and loss statement health, despite a reduction in the immediate price target.
The adjustment comes as Under Armour has been perceived differently by investors, not fitting neatly into the category of a growth stock, yet often evaluated based on its revenue performance. This is partly due to the company's own emphasis on revenue in communications with investors.
BMO Capital's analysis suggests that Under Armour's current strategy of focusing on brand elevation through selective revenue contraction might be a positive shift. The strategy aligns with BMO's principle of "Sell Less, Charge More," which emphasizes profitability over volume.
The firm anticipates that this approach could lead to a turnaround for the brand, which is currently seen as undervalued. The emphasis on doing less to achieve more is expected to contribute to the brand's long-term health, as well as to improvements in the company's financial performance.
BMO Capital expressed confidence in the potential upside for Under Armour's business, which they consider to be under-earning and undervalued at present. The new price target of $10 reflects this cautious optimism about the company's strategic direction and its impact on long-term success.
InvestingPro Insights
Under Armour's current valuation presents an interesting profile for investors, as reflected in real-time data from InvestingPro. With a market capitalization of $2.91 billion and a price-to-earnings (P/E) ratio of 7.23, the company is trading at a low earnings multiple, suggesting it may be undervalued compared to its earnings potential. This aligns with BMO Capital Markets' view of the stock as undervalued and having upside potential.
The company's stock price has experienced volatility, with a 1-month price total return of 2.44%, but a more significant 3-month price total return decline of -16.85%. Despite recent price movements, InvestingPro Tips indicate that Under Armour's cash flows can sufficiently cover interest payments and that its liquid assets exceed short-term obligations, providing financial stability.
For investors seeking more comprehensive insights, InvestingPro offers additional tips on Under Armour, including the company's moderate level of debt and analysts' predictions of profitability this year. Using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these insights and more. In total, there are seven additional InvestingPro Tips available for Under Armour, which can further inform investment decisions.
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