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Why Under Armour, Inc. Shares Might Pull Back

By Brian Pacampara – Mar 20, 2014 at 9:27AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Under Armour, Inc. (UAA -0.78%) sank 3% in premarket trading Thursday after Stern Agee downgraded the athletic apparel company from buy to neutral.

So what: Along with the downgrade, analyst Sam Poser planted a three-year price target of $170 on the stock, representing about 40% worth of upside to yesterday's close. So while momentum traders might be attracted to Under Armour's strength over the past year, Poser's call suggests that the stock's return potential for 2014 is now limited.

Now what: According to Stern, Under Armour's short-term risk/reward trade-off is pretty balanced at this point. "Lowering rating from Buy to Neutral following a 40% move in the stock this year," said Poser. "We find it difficult to step in now with a 12- to 18-month time horizon given the 65X multiple of our FY14 EPS estimate, though we remain very bullish on the long-term outlook for UA due to the ongoing momentum of all apparel categories, progress in athletic footwear, and the pending material acceleration of international growth." Given Stern's still very bullish view of Under Armour's long-term appreciation prospects, however, patient Fools would do well to take today's downgrade with a grain of salt.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Under Armour. 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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