Under Armour's Weak Q3 Leaves Investors With 3 Concerns

Under Armour IncUAAScott KrasikUnder Armour's stock with an unchanged $14 price target, which will be under review pending the company's post-earnings conference call. Under Armour's revenue in the third quarter was weak and below expectations, Krasik said (see his track record here). The report also showed that the brand is no longer growing in the U.S. Any growth in the international market isn't large enough to offset the domestic weakness.

Investors who are tempted to buy the stock on the weakness may want to reconsider based on the analyst's three concerns, including:

1. How strong is the Under Armour brand, given a new lower quality distribution and heightened competition?
2. Is the overall athletic apparel category seeing a slowdown in growth?
3. Why is it that the footwear segment grew just 2 percent at a time when it was expanded into close to 2,000 new mid-tier doors.

Under Armour's stock is trading near a P/E valuation of 70x, which is more than 3x the median multiple of high growth consumer stocks under the analyst's coverage. This appears to be "lofty" given Under Armour's "significantly slower" growth prospects.

"We continue to view UAA as a source of funds given our concerns around its long-term growth and margin potential and the impact that could have on its still lofty valuation," Krasik also said in the report.

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