Will Under Armour (UA) Stock Continue to Gain Following Stock Split?

NEW YORK (TheStreet) -- Under Armour (UA) shares are up 1.17% at $82.14 in early morning trading on Tuesday after rising 0.37% in after-hours trading last night following the sports apparel manufacturer's announcement that it's initiating a 2-for-1 stock split, creating a new Class C non voting stock.

The new Class C non-voting stock will be issued to all existing Class A and B shareholders through a stock dividend.

Each Class A and B shareholders will receive one share of the new Class C stock.

The Baltimore, MD-based company will send an application to the New York Stock Exchange for a new listing for the new stock which will trade under a different symbol than Under Armour's current UA symbol.

The company will also hold a shareholder meeting August 26 to vote on amendments to its charter as it relates to the new class of shares.

Insight from theStreet Research Team:

Researchers at Growth Seeker have a $91 price target on Under Armour's shares. Here is what they had to say about the company:

The stock closed the week mostly unchanged. On Wednesday, the NBA announced that Nike ( NKE) has won the concession for an eight-year on-court and sideline apparel deal beginning in the 2017-2018 season. Financial terms were not announced, though it's rumored that the deal was for approximately $1 billion.

We don't believe UA had real intent to win the very expensive bidding and note we don't see any major change in the landscape, as Nike already dominates the basketball shoe market with nearly 95% market share. As for UA, its star, Stephen Curry -- the NBA's Most Valuable Player - and his team, the Golden State Warriors, are one win away from becoming the league champions in the NBA Finals.

Management has been constant innovators, using technologies in an industry that has often overlooked innovation, and we believe the company continues to make bold moves -- and spend on investments -- to stay on the cutting edge while it builds out its presence in footwear, international markets, clothing for women, direct-to-consumer products and connected-fitness items.

-Bryan Ashenberg, 'Growth Seeker Weekly Summary', 6/15/2015

TheStreet Ratings team rates UNDER ARMOUR INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate UNDER ARMOUR INC (UA) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.4%. Since the same quarter one year prior, revenues rose by 25.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 49.57% is the gross profit margin for UNDER ARMOUR INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.45% trails the industry average.
  • Compared to its closing price of one year ago, UA's share price has jumped by 45.02%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • UNDER ARMOUR INC's earnings per share declined by 16.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, UNDER ARMOUR INC increased its bottom line by earning $0.95 versus $0.75 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus $0.95).
  • Despite currently having a low debt-to-equity ratio of 0.49, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.40 is sturdy.
  • You can view the full analysis from the report here: UA Ratings Report

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