As of 3:05 p.m. EST on January 16, "A" shares of Under Armour Inc (NYSE: UA) are down 10.5%, while its "C" shares (NYSE: UAA) are down 7.8%. Today's sell-off is at least partly due to a downgrade by an analyst at investment bank Macquarie. In a recent note, analyst Laurent Vasilescu lowered his expectations for Under Armour's EBITDA (earnings before interest, taxes, depreciation, and amortization) and his target price for Under Armour stock, to $8.
This wasn't the first downgrade of Under Armour's stock in 2018, with Susquehanna analyst Dam Poser updating his rating from neutral to negative last week over concerns that the company's brand would "deteriorate" in the near term due to pressure in the North American market.
Investors continue running away from Under Armour. Image source: Under Armour.
In the short term, there's little doubt that Under Armour has its work cut out in North America, which makes up for more than three-fourths of its sales, at present. At the same time, the company is struggling to right-size its operations after overinvesting in growth left the company flat-footed when demand in the U.S. fell over the past year. Because of that, the analysts are right about Under Armour -- the business -- in that it's going to be a tough year.
While the recent analyst notes and downgrades paint a somewhat bleak picture about Under Armour's near-term stock price and the company's prospects, anyone who's considering either buying or selling shares in the company at present should remember that investing in any stock in the short term is always a risky proposition. A company's results are important, but in the short term, completely unpredictable things -- very often totally unrelated to a company -- can cause stock prices to move up or down. That's no different in the case of Under Armour.
But if we stretch the time frame out a few years, a company's business results will have a bigger impact on the stock price. That's not to say Under Armour is worth buying right now. After all, there are very serious challenges management must work through to reestablish profitable growth in North America and further its investments in international markets where its best growth prospects probably reside.
Before you do anything, take the time to understand the full story, as well as the risks Under Armour must manage, before deciding if it's a stock you want to own or avoid.
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Jason Hall owns shares of Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.