Are Under Armour, Inc. (NYSE:UAA) Investors Paying Above The Intrinsic Value?

In This Article:

Key Insights

  • Under Armour's estimated fair value is US$6.57 based on 2 Stage Free Cash Flow to Equity

  • Under Armour is estimated to be 35% overvalued based on current share price of US$8.86

  • Our fair value estimate is 23% lower than Under Armour's analyst price target of US$8.49

In this article we are going to estimate the intrinsic value of Under Armour, Inc. (NYSE:UAA) by estimating the company's future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

See our latest analysis for Under Armour

The Model

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$6.64m

US$66.7m

US$98.9m

US$132.0m

US$154.0m

US$170.4m

US$184.4m

US$196.4m

US$206.8m

US$216.0m

Growth Rate Estimate Source

Analyst x6

Analyst x6

Analyst x3

Analyst x1

Analyst x1

Est @ 10.66%

Est @ 8.21%

Est @ 6.50%

Est @ 5.30%

Est @ 4.46%

Present Value ($, Millions) Discounted @ 7.8%

US$6.2

US$57.3

US$78.9

US$97.7

US$106

US$108

US$109

US$108

US$105

US$102

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$877m

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.8%.