The worst is still to come for Under Armour Inc stock

Under Armour Inc (NYSE: UA, UAA) investors may be running out of patience with the struggling company, but the stock tumbled 8.6 percent Tuesday on concerns Under Armour may be running out of money. According to Macquarie Capital analyst Laurent Vasilescu, Under Armour's deteriorating financial situation may soon force the company to raise capital.

Vasilescu says the situation at Under Armour is more dire than investors realize. Consensus Wall Street estimates are calling for 4.6 percent revenue growth from Under Armour in 2018, but Vasilescu says the company will report a 1 percent revenue decline this year. Under Armour's recent sales growth has come almost entirely from new wholesale retail partnerships rather than growth from existing partners, Vasilescu says.

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Macquarie has lowered its estimate for fiscal 2018 earnings before interest and taxes from $85 million to just $25 million. The firm anticipates a 7 percent decline in North American revenue, a 21 percent gain in international revenue and no change in Connected Fitness revenue in fiscal 2018.

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Consensus analyst forecasts are also calling for Under Armour's gross margins to increase 0.6 percent to 45.2 percent this year, but Vasilescu predicts they will decline 1.1 percent to 43.2 percent.

Under Armour stock is already down more than 56 percent the past three years after revenue growth slowed from 30 percent-plus to the single digits and eventually dipped to negative 5 percent in the most recent quarter.

Despite the large decline, investors should think twice before buying the stock on the dip.

"UA may need at some point to do a capital raise if revenues, gross margins and [selling, general and administrative expenses] continue to deteriorate," Vasilescu says. "This may prove challenging with Moody's and S&P's recent downgrades as well as the multi class equity structure."

Susquehanna analyst Sam Poser also recently cautioned investors about Under Armour stock.

"Given the poor brand management, top-line revenue increases, which have slowed to [low-single digits], and an uncertain future, we see no reason why UAA deserves to trade near its historic multiple," Poser says.

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Macquarie has an "underperform" rating and $8 price target for Under Armour. Susquehanna has a "negative" rating and $11 target for UAA stock.

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