Under Armour Inc. (NASDAQ:UA) CEO Kevin Plank is like the superstar athlete who got the deal of a lifetime and then quickly lost his edge. UA stock has been the one to suffer.
Ever since delivering a “stock split” engineered to guarantee his perpetual control over the company’s voting shares, Plank has been hearing boos.
Profits have nearly disappeared. Regular outlets like Sports Authority have closed and new ones like Kohl’s Corporation (NYSE:KSS) have been unable to pick up the slack.
Worse, the allegiances of young consumers on endorsements have shifted, from athletes to musical artists like Kanye West, whose designs are made by Adidas AG (ADR) (OTCMKTS:ADDYY).
While Nike Inc (NYSE:NKE) stock has merely stalled, UA stock has gone into freefall. Lululemon Athletica inc. (NASDAQ:LULU), which Plank once thought about buying, could now buy him.
What investors are wondering is, has Kevin Plank lost a step? Can he come back?
UA Stock Drama
In some ways, Plank’s story is like that of a young athlete. For a corporate leader he is still very young at age 44, having founded the company right after graduating from the University of Maryland.
Plank’s career so far has had one weird trick, a form-fitting t-shirt that made the company a power in athletic apparel. He marketed the gear through athletes, and by 2015 he was worth $3.5 billion.
Then came the split, and the retail apocalypse. Plank was busy planning a grand new headquarters complex on the Baltimore waterfront and was slow to respond. In July he brought in Patrik Frisk, a veteran retailing executive, as chief operating officer. Since then the stock’s fall has only accelerated.
Plank’s move into shoes has proven a disaster, as I noted in September. The Amazon.com, Inc. (NASDAQ:AMZN) ship has sailed, as Nike grabbed the account.
Under Armour Is a Battlefield
Under Armour has become a “battlefield” stock, with bulls pounding the table for it and bears continuing to beat it down.
At its current market cap of $5.5 billion, UA stock is selling for just a little less than its anticipated 2017 sales, which James Brumley says makes it a good contrarian play.
Don’t hold your breath on that comeback, responds Laura Hoy, citing a third quarter report showing lower sales than a poor 2016 and earnings of just 12 cents per share.
The fourth quarter may be no better. Under Armour is still stuck with excess inventory and moving it will not only mean a short-term loss, but a long-term hit to its reputation among fickle buyers.
It may be undervalued, but if so the winning play is long calls, small bets that the price will rise by 2019, Chris Tyler suggests.
The Key Is Frisk
The key to any comeback appears to be Frisk, who demonstrated as CEO of the Aldo Group an ability to use Salesforce.com, inc. (NYSE:CRM) software to get a better view of his customers, and profit from it.
Under Armour uses SAP SE (ADR) (NYSE:SAP) but the idea is the same, using data on customers to understand their desires. Frisk is lucky in that Plank went on a buying spree of tech assets before hiring him, and now has a franchise in fitness bands and software he can work from.
It could work. Investors are paying three times revenue for Nike. If Frisk can get that kind of valuation for Under Armour, you’re looking at a 300% gain over the next few years.
Of course, if its and buts were candy and nuts we’d have a Merry Christmas. If you’re betting on Under Armour, know that you’re speculating, know that it’s a multi-year play, and make your bet accordingly.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
