Why Under Armour Inc (UAA) Stock Is STILL Not Worth a Shot

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I really don’t want to say out loud what I’m thinking inside about Under Armour Inc (NYSE:UAA). Taking aside its investment performance over the last two years, Under Armour makes great products. The company endorses superstar athletes, and I’m sure, even greater employees. I have nothing personal against the company. But facts are facts, and so far, UAA stock is a bear trader’s wish come true.

Why Under Armour Inc (UAA) Stock Is STILL Not Worth a Shot

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To be honest, I felt a little uncomfortable about my last write-up for the trendy sports apparel provider. Two factors made my ultimately bearish analysis difficult.

First, UAA stock had dropped firmly into $20 territory. A month before the presidential election, Under Armour was trading for roughly twice as much. You hate to put yourself out there after a stock receives a 50% haircut.

The other is the contrarian argument. Although most InvestorPlace contributors are just as bearish, if not more so than me, Richard Saintvilus bucked the trend. I have tremendous respect for his work, so when he called for a $25 price target in UAA, I listened. Certainly, the product reviews and strong celebrity endorsement deals are a net positive for Under Armour. And as he points out, we should buy low, and sell high, not the other way around.

That said, I couldn’t bring myself to be neutral on UAA, let alone switch to the bullish side. Yes, shares looked liked they bottomed. But we’ve seen this pattern before. Furthermore, Under Armour has problems that rivals Nike Inc (NYSE:NKE) and adidas AG (ADR) (OTCMKTS:ADDYY) don’t. Plus, the pair is handily beating benchmark returns.

To add insult to injury, UAA stock is down more than 7% since my last, pensive write-up. And guess what? I still don’t like it!

UAA Stock Has No Compelling Story

The biggest challenge facing Under Armour is that, at the end of the day, it’s in the apparel business. While Under Armour makes awesome gear and entertaining advertisements, a shirt company is a shirt company. Nothing compels consumers to buy their products as they’re not that noticeably different from Nike or Adidas.

The lack of incentive is hugely problematic for UAA stock because the non- Amazon.com, Inc. (NASDAQ:AMZN) retail sector is a disaster. At the moment, consumers are extremely selective of what they purchase. Even worse, I don’t think this deflating trend will improve anytime soon.

Since President Trump took office, consumer sentiment has actually declined by more than 1%. On surface level, the sentiment metric seems to contradict the labor market, which is experiencing record-low unemployment. Furthermore, wages are rising. The kicker is that wage growth isn’t keeping pace with critical cost of living expenses, such as rent or housing.

The insane real estate bull market is especially hurting the younger Millennial demographic, an obvious target for UAA. When given a choice between paying for necessities or a Steph Curry-branded shoe, I trust that most Millennials would opt for the former.

The inability to gain traction, and the unlikelihood of Under Armour doing so quickly, is probably what’s causing its shares’ choppy consolidation. Only a few standout players in the apparel market are getting the business done. Otherwise, it’s pretty ugly out there.

Bad Decisions Hurting Under Armour’s Reputation

In another article I pulled up from my bear-pit archives, I mentioned that Nike failed to acknowledge the fashion-forward trends in sports apparel. Adidas capitalized on this mistake and “partnered with hip-hop artist Kanye West and created the Yeezy.” Unfortunately for UAA stock investors, Under Armour’s response has been less Yeezy, and more cheesy.

When UAA entered into distribution agreements with companies such as Kohl’s Corporation (NYSE:KSS), I missed the forest for the trees. I saw it as a symbolic, but ultimately fruitless effort. What I should have said, and what InvestorPlace contributor Luce Emerson was likely thinking, was “what the hell are they doing?”

Emerson wrote, “Kohl’s is popular with middle-class women, whereas Under Armour’s market is youths interested in a cool, sleek shoe. Kohl’s is known to engage in deep discounting as well. It would undermine the premium status positioning that UAA has strived for, if branded items do go on sale the way of most Kohl’s merchandise.”

I couldn’t have said it any better if I tried. The reason I’m staying far away from UAA stock isn’t strictly based on their technicals. It’s that Under Armour hasn’t done anything to make me believe it will recover. Indeed, the decisions they have made makes me question if we’re not headed for yet another leg down.

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/2017/07/under-armour-inc-uaa-stock-not-worth-shot/.

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