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Under Armour (NYSE:UA) is expected to announce its fourth quarter earnings on the 28th of January before the bell and analysts are expecting revenues of $1.12 billion and an EPS of $0.46. Under Armour stock is already down a whopping 16%+ year to date (see chart) and investors should be cautious about upcoming earnings in my opinion. Why? Well, the company has beaten EPS expectations for the past 27 quarters and many of those earnings “beats” catapulted the stock price to over $100 a share last September. However, Q3 earnings last October was the first time the market didn’t respond well to a beat on earnings as Under Armour stock sold off after the announcement. Why? Well, the cost of sales metric on the balance sheet ballooned to $616 million which meant gross margin fell to 48.8% from 49.6% in the corresponding quarter in 2014.

Third quarter earnings definitely changed sentiment as the company up to that point was enjoying strong revenue growth along with stable operating margins. Nevertheless recent weakness has meant that the company’s trailing 12 month operating margin metric is currently 10.2% which is a good 1.3% lower than operating margins in 2014.

If this trend continues, you are going to see the market becoming more bearish on Under Armour stock as a lot of future growth has already been priced in. Under Armour stock presently has a price to earnings ratio of just under 70 and the recent stock price collapse has dropped the forward price to earnings ratio to just over 50. Earnings need to convince the market that the company’s long term growth path is intact. Here are some things to watch out for.

The obvious metric to watch when the company announces its earnings is revenue growth in international markets and specifically China. Whereas North American sales grew by 25% last quarter, it is the international markets which reported 52% revenue growth and are still basically untapped that are really giving this company a high valuation at present.