NEW YORK (TheStreet) -- Under Armour (UA - Get Report) shares are tanking 4.99% to $71.26 in Monday's pre-market trading session after Morgan Stanley downgraded the sports clothing and accessories company to "underweight" from "equal-weight" and slashed its price target to $62 from $103.
For the first time in three years, the company is losing market share, the firm said, citing recent SportScan data.
Analysts are bearish given that average selling prices (ASPs) are dropping at an accelerating pace.
Specifically, these trends are particularly evident in women's apparel, the firm noted.
Overall, analysts see an unfavorable risk/reward.
"The stock has maintained a premium multiple despite downward margin revisions. However, if the market questions the UA growth story, the P/E could fall significantly and our FY16 EPS estimate is 7% below consensus," analysts added.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate UNDER ARMOUR INC as a Buy with a ratings score of B-. 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, growth in earnings per share, increase in net income, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 13.8%. Since the same quarter one year prior, revenues rose by 28.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- UNDER ARMOUR INC has improved earnings per share by 9.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. 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 ($1.05 versus $0.95).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 12.8% when compared to the same quarter one year prior, going from $89.11 million to $100.48 million.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- The gross profit margin for UNDER ARMOUR INC is rather high; currently it is at 50.93%. Regardless of UA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.34% trails the industry average.
- You can view the full analysis from the report here: UA