Under Armour's Cheap Stock Test: Can It Keep $140M-$160M Income While Revenue Keeps Falling?

Under Armour is guiding to lower revenue but still positive income

This is the core paradox: Under Armour still expects $140 million to $160 million in adjusted operating income, even as fiscal 2027 revenue is expected to keep falling. That is why investors are split. Some see a cheap turnaround; others see a business that is still broken.

The market's immediate reaction was blunt. Shares fell 16.7 percent after earnings to about $4.90, leaving the company worth roughly $2.1 billion.

The real question is execution, not valuation theory: can Under Armour preserve cost discipline and profit targets long enough for demand to stabilize? That is where the risk sits. The company has $309 million in cash and $605 million in restricted investments, which gives it some room to work through the reset. But bears can point to softer demand and a mid-single digit percentage rate revenue decline, which makes this a tougher setup than the latest investor-relations update suggests.

The profit case depends more on cost control than on top-line growth

How the math still works

Under Armour is trying to offset weaker sales with faster cost cuts. In fiscal 2026, revenue fell 4% to $5 billion, while adjusted SG&A also fell 5% to $2.2 billion. Adjusted operating income for the year was still $107 million. In the fourth quarter, the pressure was more obvious: revenue declined 1% to $1.2 billion, but adjusted SG&A dropped 14% to $503 million.

That is the basic mechanism. If the cost base shrinks quickly enough, the company can still report operating income even while revenue slips.

Management is also pushing for a simpler business. Under Armour says it has reduced SKUs by 25% over the past two years and ended the year with inventory: ended the year at $915 million, down 3% year over year. That suggests the reset is not only about overhead cuts.

Margin recovery is the upside, but it is not guaranteed

Fiscal 2026 gross margin fell to 45.7%, and the fourth quarter was tougher, with gross margin at 42%. For fiscal 2027, management expects gross margin to expand by 220 to 270 basis points. If that happens, the message is that some of the recent pressure was temporary.

That is where the small upside lives. If Under Armour can regain pricing discipline, margin recovery could help support income before revenue fully turns around.

The bear case: tariff pressure and promotions can undermine the recovery

The main risk is that margin repair depends too much on cost actions while demand stays weak. Last quarter, management said results were hurt by higher costs, mainly from tariffs and increased promotional pressure, particularly in its direct-to-consumer channels.

If the brand still needs discounts to move product, then margin improvement may say more about the cost structure than about stronger consumer demand. The key watchpoints are gross margin and promotional behavior, not just the operating-income target.

The stock looks like a turnaround watchlist name, not a growth story

At about $5 a share and roughly $2.1 billion in market capitalization, Under Armour looks cheap enough to notice but not cheap enough to excuse another round of execution misses.

The clearest near-term signpost is earnings power. Management still guides to $0.08 to $0.12 in adjusted diluted EPS for fiscal 2027 after an adjusted diluted loss per share of ($0.03) in the fourth quarter. That is the gap investors need to see narrow.

The thesis improves if margin recovery holds, full-price demand looks healthier, and revenue stabilization begins to show up. If profits keep relying mostly on a smaller cost base while sales keep slipping, the stock may remain cheap for a reason.