What happened

Give Under Armour (NYSE:UA) (NYSE:UAA) a round of applause: They did it again.

Three months ago, sportswear maker Under Armour (UA) outperformed expectations with a surprise fourth-quarter profit, and promised to keep the hits coming in fiscal 2021, delivering "high-single-digit percentage" sales growth, better gross profit margins on those sales, and positive operating income to boot (net income would still be negative, however).

Yesterday, the company exceeded expectations once again, delivering an earnings beat: $0.16 per share where analysts were only looking for $0.03. As a result, analysts are upgrading their ratings on Under Armour shares, and investors are bidding the stock higher -- up 9.1% as of 1 p.m. EDT.

Stock up glowing green arrow climbs on a stock screen.

Image source: Getty Images.

So what

At last count, TheFly.com had tallied no fewer than three separate upgrades in response to Under Armour's Q1 2021 news.

Atlantic Equities was first off the blocks, removing its sell rating and upgrading Under Armour shares to "neutral" with a $24 price target on signs of "solid and convincing progress on the operational turnaround," says TheFly.

Barclays Capital and UBS were even more optimistic, with Barclays rerating the shares "overweight" (with a $34 price target) and UBS going as high as $36 a share, with a "buy" rating. Barclays highlighted Under Armour's significant positive inventory inflection" (i.e., reducing overstocking) and "high-quality" sales growth, predicting UA will now be able to sell more shoes and clothing at higher prices to satisfy growing demand. Moreover, UBS predicted that these improvements will be "long-lasting."

Now what

Under Armour's own guidance supports this view. Instead of the "high-single-digit" sales growth rate it predicted just three months ago, UA management now sees its sales growing at a "high-teen percentage rate" this year. Gross profit margins are expected to surpass 49%, helping to generate operating profits from $105 million to $115 million.

Granted, UA still anticipates booking a net loss for the year -- but only $0.02 to $0.04 per share versus the $0.18 to $0.20 per share management previously thought it would lose. Adjusted earnings, meanwhile, could range as high as $0.28 or even $0.30 per share. And even at the low point on that range, Under Armour would be twice as profitable as the $0.14 per share that analysts are forecasting.

No wonder shareholders are pleased.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.