Under Armour (NYSE:UA) (NYSE:UAA) is one of several fallen retail stars of the past few years. No matter how hot your brand is one day, the realities of retailing are tough -- especially in the age of mall closures and the rising popularity of e-commerce. Since 2016, Under Armour had seen its stock fall from over $40 per share (split adjusted) to the low teens earlier this year.

However, after the company's last earnings call in late October, the stock rocketed up another 24%, and it has roughly doubled from its lows of late 2017. Furthermore, at least one prominent analyst thinks the stock can run even further. With Under Armour's stock still at only half its 2016 highs, is it time to hop back in?

view from the ground as three women sprint past the camera in athletic gear across a bridge.

Have you missed Under Armour's big gains? Image source: Getty Images.

Q3 earnings: Better...but still not great

What in the most recent earnings report got investors excited? Solidifying financial metrics, at least relative to expectations. But while Under Armour has improved its operations and paid down debt, its growth picture is still murky. As you can see, in the recently reported quarter the company's numbers mostly improved relative to last year, but remain lackluster.

Under Armour (millions)

Q3 2018

Q3 2017

Revenue

$1.44 billion

$1.41 billion

Revenue change, YOY

2.4%

(4.2%)

Adjusted gross margin

46.5%

46.2%

Adjusted operating margin

9.9%

10.7%

YOY = year-over-year. Data source: Under Armour Q3 2018 and Q3 2017 press releases. 

As you can see, Under Armour paints a mixed picture. Revenue grew, compared to last year's loss, and gross margins slightly improved, but operating margins (adjusted for restructuring costs) fell due to an increase in selling, general, and administrative costs. That could indicate that Under Amour is having to spend more on marketing just to make those modest revenue gains.

Note that Under Armour trades under a dual-class structure. Under Armour issued Class C non-voting shares to holders of its Class A shares in April 2016, functioning as a two-for-one stock split. Class A shares began trading under the ticker symbol UAA on Dec. 7, 2016, at the same time that Class C shares began trading under the ticker symbol UA.

One analyst makes the bull case

Over the past couple of years, Under Armour has pivoted from growth at all costs to an expensive streamlining effort that will include the company laying off 400 people by early 2019. Founder, CEO, and Chairman Kevin Plank in the Oct. 30 conference call with analysts touted the company's strong turnaround efforts, saying, " ... we've executed against a number of strategic initiatives to better ourselves as a company and as a brand. To highlight some of these efforts, I'd start with our restructuring plans which we've used to close underperforming facilities and retail locations, exit certain sports marketing contracts, optimize our global workforce and aggressively clear challenged inventories."

This work has caused Under Armour's revenue to stagnate as the company gets its house in order. The question is: What kind of growth prospects are left? 

Recently, Piper Jaffray analyst Erinn Murphy bought into the Under Armour story, upping her price target from $20 to $32 per share, citing underappreciated sales growth opportunities. "Our view is the favorable industry dynamics, direct-to-consumer mix benefit and white space internationally against a more soundly run company will enable Under Armour to be on a path towards [mid-to-high single digit] sales growth over time," she was quoted as saying.

Looking forward, it's still unclear whether the company can grow enough to justify a price above $30 per share. Under Amour projects just $0.19 to $0.22 in adjusted full-year EPS this year, and that's inclusive of a $0.02 tax benefit. That would still be well below the company's previous net earnings record of $256 million, set in 2016. Under Armour's current $10 billion market cap is nearly 40 times those "peak" earnings, so even at $21 per share, the market is pricing in quite a bit of good news, and then some.

International is the thing to watch

One reason for optimism is Under Armour's international segments. The company's North American business is still by far its largest segment at 73.4% of revenue in the most recent quarter, but it may also be somewhat saturated: North American revenue declined 1.6% last quarter.

However, revenue surged at midteen growth rates across the EMEA region (Europe, the Middle East, and Africa), the Asia-Pacific region, and South America. If the international segments can continue to grow at these high rates for a long time, it's possible Under Armour could grow into its valuation. But there's a long way to go before international makes up for the stagnant North American segment, and given the uncertainties in overseas economies, I'd be cautious.

Not a safe bet

Under Armour deserves credit for its turnaround efforts and other long-overdue policy changes (like no longer allowing employees to charge visits to strip clubs to corporate credit cards [subscription required]). Still, the stock is too expensive for me to recommend buying.

Retail is a difficult game, and Under Amour is up against behemoth Nike and a rejuvenated Adidas in all its markets, both at home and overseas. The market appears to be pricing in continued growth and profitability for the company for the foreseeable future. That may happen, but the "easy money" seems to have been made. I'm happy sitting on the bench for this one until a more definitive growth picture emerges.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of some of the companies mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.