Shares for Under Armour (NYSE:UA) jumped 26% yesterday. The retail company’s third quarter results exceeded expectations on the same day as the market posted a major rally. But Andrew Snyder says this is down to marketing hype. Q3 were solid, but the company has a weak business model in a competitive industry that is vulnerable to recession. It also has a PE ratio almost double the S&P500 average. That’s why Andrew says it is one of the few remaining overvalued stocks on the market.

This from Today’s Financial News:

You have to search the equities market pretty hard to find any companies still trading at overvalued prices, but if you look hard enough they are still out there.

One of them is making headlines today. Thanks to the company’s better-than-expected earnings report, shares of Under Armour (NYSE:UA) are trading significantly higher.

Right now, buyers are paying a 12% premium on yesterday’s closing price. Share price was even higher earlier in the day. Buyers are making a big mistake.

Out of all the undervalued gems on Wall Street right now, I cannot imagine why in the world investors are willing to shell out a sizeable premium for this already overpriced stock.

It doesn’t add up

Just look at the earnings figures released today. Over the last three months, Under Armour recorded revenues of $231.9 million, a year-over-year increase of 24%.

Get rid of manufacturing expenses, taxes, and all that other stuff and the company reported a quarterly profit of $27.5 million, or $0.51 per share. Analysts were expecting revenues of $227 million and earnings per share of $0.50.

Sure, the company exceeded forecasts, but not by the margins you would expect to see when investors bid share price up by double-digit proportions.

Because of today’s valuation surge, Under Armour now has a market capitalization of over $1 billion and a price-to-earnings ratio of over 24. That figures is nearly twice as high as the S&P 500 average.

With the company lowering its annual revenue forecasts to $750 million from as much as $775 million, its P/E ratio should be dropping, not rising.

Do not fall for marketing hype

This stock is a prime example of emotional investing and a marketing team’s effect on investors. Share price is artificially propped higher because investors believe the company truly has a long-lasting, high-demand product. But in reality, Under Armour has a terribly weak business model.

Its competitive moat is tiny, which is made obvious by the huge amount of comparable alternative products flooding the market. Plus, the company is right in the middle of an industry highly susceptible to recessionary pressures.

Let’s face it. The first thing consumers will cut out of their budget over the next few months will be trendy, over-priced underwear. If Under Armour wants to keep its products moving off of store shelves, it will be forced to greatly reduce prices. That means margins will be significantly reduced and earnings will be hammered.

My head is spinning watching investors waste their money in this stock. There are much, much better choices. The only investors that will make money on this company are the ones that are smart enough to short it.

Under Armour should be one of the worst performing companies, not one of the top performers. It is as simple as that.

Source: Marketing hype: Watch out for Under Armour (UA)