Should I invest in Under Armour shares after better than expected first-quarter results?

Under Armour (NYSE: UAA) shares have weakened from their recent highs despite better than expected first-quarter results. The U.S. stock market is losing some ground this Tuesday, which also negatively influences Under Armour shares.

Fundamental analysis: Under Armour shares are not undervalued

Under Armour is an American sports equipment company that manufactures footwear, sports, and casual apparel, and despite the pandemic environment, this company’s business is going well. Under Armour reported first-quarter results today; total revenue has increased by 35.4% Y/Y to $1.26 billion while the GAAP EPS was $0.17 (beats by $0.18).

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Revenue in North America rose 32%, while the international business increased 58% to $425 million. It is also important to mention that footwear revenue rose 47% to $309 million in the first quarter and accessories revenue jumped 73% to $117million.

Total revenue has increased above the expectations (+$130 million), and the company expects this trend to continue in the upcoming quarters. For the fiscal year 2021, Under Armour expects revenue to rise at a high percentage rate while the adjusted EPS should be around $0.30.

“Under Armour is off to an excellent start for the year. Our first-quarter results demonstrate that our improved operating model and investments we’re making to amplify our connection with consumers are enabling us to deliver against strong demand for our brand,” said Under Armour President and CEO Patrik Frisk.

Under Armour is in a good position to grow its business, but at the current valuation, lots of positive expectations have already been included in the price of the stock. Under Armour trades at more than sixty times 2020 EBITDA, the book value per share is less than $4, and the company does not pay a dividend.

If we compare total stockholders’ equity of $1.67 billion and the market capitalization of $10 billion, we can notice that this stock is not undervalued, and the current risk/reward ratio is not good enough for “value” investors. Under Armour shares remain under pressure, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.

Technical analysis: $20 represents a strong support level

Under Armour shares have weakened from their recent highs despite better than expected first-quarter results, but as long as the price is above $20, this stock remains in a “bull “market.

The critical support levels are $20 and $18, $26, and $28 represent the resistance levels. If the price jumps above $26 resistance, it would be a signal to trade shares, and the next target could be around $28.

On the other side, if the price falls below $20 support, it would be a firm “sell” signal and probably a trend reversal sign.

Summary

The U.S. stock market is losing some ground this Tuesday, which also negatively influences Under Armour shares. Under Armour reported better than expected first-quarter results, and the company expects this trend to continue in the upcoming quarters. The current risk/reward ratio is not good enough for “value” investors, and if the price falls below $20 support, it would probably be a trend reversal sign.