Under Armour Inc (UAA) Stock Hasn’t Hit Rock Bottom Yet

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Another day, another time to warn investors about Under Armour Inc (NYSE:UA, NYSE:UAA) stock and how it is easily one of Wall Street’s favorite whipping boys.

Under Armour Inc (UAA) Stock Hasn't Hit Rock Bottom Yet

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Year-to-date, shares of the upstart athletic gear and apparel company is down nearly 34%. Over the trailing one-year period, Under Armour has almost halved its market value. Clearly, something is not going according to plan.

Of course, with such a severe discount, contrarians are loving UAA stock. Although I don’t agree, I can appreciate the sentiment.

As InvestorPlace contributor Richard Saintvilus notes, Under Armour shares are “now trading 55% below its 52-week high.” For those that saw the company’s potential back when the market value was initially this low, this is a chance to go back in time. This is especially true if they didn’t pull the trigger the first time around.

The other major incentive for UAA stock is that the apparel maker is a very well-known commodity. Kids love them, budding athletes can’t get enough, and the star potential is undeniable. Under Armour endorses the god of football, Tom Brady. And Steph Curry, one of the hottest players in the NBA, is also on the company payroll. A fly-by-night operation UAA is not.

Under Armour also enjoyed some benefits for putting up a decent earnings report for the first quarter. UAA pared bearishness significantly, posting an per-share earnings loss of a penny as opposed to the 4-cent consensus loss. Also, gross margins, while still dropping, declined at a much more favorable rate than expected. All told, the company appears to have bottomed.

Unfortunately, appearances can be deceiving.

Sports Apparel Sector Is Shrinking on UAA Stock

I’m not casting doubt on UAA stock simply because its given up its short-lived earnings boost. However, it is concerning when a bounce-back candidate refuses to, well, bounce back. I think much of this is a result of a shrinking market in the sports apparel industry.

Take Nike Inc (NYSE:NKE) as a prime example. About a year-and-a-half ago, Nike boldly announced that it would generate $50 billion in annual sales by 2020. Such hubris would require a growth rate of about 10%, according to Bloomberg writer Ira Boudway. When the announcement was made, Nike looked like it could back up the hype. But eventually, cracks began to show.

As Boudway explains, “A year and a half later, Nike’s strengths—its relentless focus on athletic performance and its size, with more than 70,000 employees worldwide—have begun to look like potential liabilities in a fast-moving, fashion-driven market.”

In contrast, rival Adidas AG (ADR) (OTCMKTS:ADDYY) capitalized on Nike’s strategic misstep.

Source: Shutterstock

Rather than go purely in the athletic direction, Adidas partnered with hip-hop artist Kanye West and created the Yeezy, “which has supplanted the Air Jordan as the prime status symbol among sneakerheads.”

Adidas’ shrewd deal has contributed to its 23% YTD gain. In contrast, NKE is up only 2.5%, and UAA stock is nowhere to be found.

Logically, we can conclude that Adidas has a much better feel for the athletic-fashion sector. But we can also say that this market has narrowed and is much more selective of what it wants. Otherwise, Under Armour, with its excellent array of products, should be doing much better in the financial markets.

Under Armour Can’t Match Nike’s Wallet

The embattled company’s woes echo that of the broader consumer retail sector. People are buying stuff, that much is obvious. The question is where they are making their purchases. Against the backdrop of e-commerce and the collapse of once iconic department stores, consumers are pickier than ever.

Nike has misjudged the shift in the sports apparel business, and is paying a price. Under Armour has made its own mistakes, which is why UAA stock is in the dumps. The critical difference, though, is that Nike can afford its errors.

I want to be clear — I’m not suggesting that Under Armour will collapse entirely. But I still believe the risk is still too rich. Technically, shares are still in a deep downtrend. Against its Jan. 31 price (when shares settled from its last major gap down), UAA stock is off 10%.

For me to believe that a bottom is in, I’d like to see shares at least make a series of positive moves. I’ll gladly sacrifice some early profitability for some assurances of stability. Right now, I’m receiving neither, which makes UAA stock suspect.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/under-armour-inc-uaa-stock-hasnt-hit-rock-bottom-yet/.

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