The hottest basketball star Stephen Curry could change Morgan Stanley’s bearish call on Under Armour (NYSE: UA), according to Morgan Stanley Analyst Jay Sole.
Under Armour stock is currently trading at $84 a share, while Sole set a target price of $64, roughly 24 percent lower than UA’s Wednesday’s close price. Sole also has an “underperform” rating on shares of Under Armour.
Sole thinks that Under Armour is trading at a much higher multiple than other retailers. He also claim that the company lowered the price of footwear more than the industry average over the past two years, and the same-store sales were likely negatively in the fourth quarter.
“We believe that Under Armour is a terrific company with exceptional management and much growth ahead of it. However, the question is whether UA's growth will justify the stock's 65x [price to earnings ratio]. We don't think so." Sole said.
However, Golden State Warriors point guard and reigning Most Valuable Player Stephen Curry may change it all and save the company.
Curry is having an amazing season. He breaks several NBA records so far and his team is chasing Bull’s record with 72 wins in 1995-96. Curry also leads the NBA scoring with 30.7 points per game.
"UA's U.S. basketball shoe sales have increased over 350 percent year-to-date," writes Sole. "Its Stephen Curry signature shoe business is already bigger than those of LeBron, Kobe, and every other player except Michael Jordan. If Curry is the next Jordan, our call will likely be wrong."
Thanks to Curry’s amazing performance, UA is challenging Nike’s monopoly in the basketball shoe market. Under Armour had revenue of $678 million in footwear last year. Curry surpassed Lebron and any other NBA players with $160 million in forward shoe sales, according to a research from Morgan Stanley.
Sole named his bull case for the stock “Spicy Curry” with a target price of $127.50. So the different between the bull case and bear case could be approximately $14 billion.