Under Armour Gets a Brazilian Boost

By Alex Dumortier, CFAFool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

WhatShares of Under Armour bucked the broad market trend on Monday, gaining 0.5% (the S&P 500 was down 0.2%), following a report published this morning in which broker FBR & Co. raised its price target $90 from $86.

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So whatOnly last week, FBR raised its price for Under Armour from $83 to $86 based on the emerging strength of its footwear line. Indeed, the broker is now in the second of four weeks of "UA Madness," in which it publishes a weekly consumer survey to examine UA's brand power and consumer acceptance. This week's topic is Latin American growth and, specifically, Brazil, and FBR concludes [their emphasis]:

Now whatIn deriving its price target for the stock, FBR's analysts assigned a super-premium multiple to UA's estimated 2016 revenues relative to its historical and peer multiple averages (4.0 times, compared with 2.2 and 2.6 times, respectively.) I'm certain UA deserves some sort of premium, but I'm not convinced it ought to be that large; unfortunately, FBR's report doesn't provide greater analytical clarity regarding how they came up with that figure.

I expect Under Armour's operating results to go from strength to strength; however, at 57 times the consensus estimate for 2016 earnings per share, the current valuation looks likely to act as a brake on further stock price gains. As I concluded last week, "Anyone buying the shares today must be prepared to hold them for a long time (five years, at minimum)."

The article Under Armour Gets a Brazilian Boost originally appeared on Fool.com.

Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Under Armour. The Motley Fool owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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