Why Under Armour Inc. Stock Is a Good Comeback Bet

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UAA stock - Why Under Armour Inc. Stock Is a Good Comeback Bet

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When a stock is as beaten down as Under Armour Inc. (NYSE:UAA), down 56% in the last year, a smart investor looks for signs of life. The best sign, in this case, is that the company has recognized its problems and is bringing in a team to address them. UAA stock could make a comeback.

Analysts are expecting what athletic teams call “a rebuilding year,” with $1.31 billion in fourth quarter revenue keeping Under Armour roughly even with 2016’s yearly total of $4.8 billion and operating cash flow flat. That’s not terrible.

The problem is it’s a long way from the 25% growth and skyrocketing cash flow to which investors had grown accustomed.

Where once Under Armour was rumored to be going after Lululemon Athletica inc. (NASDAQ:LULU), the female-oriented yoga supplier to its male-oriented football heroes, Lulu now has nearly twice the market cap, $9.75 billion, of Under Armour, worth $5.5 billion. The shoe is on the other foot.

Turning Around the Ship

CEO Kevin Plank’s forays into digital were failures, and the company recently announced new leadership for the unit, jettisoning the men whose MyFitness app was bought for $475 million in 2015 in favor of Michael LaGuardia, a former Yahoo executive.

This follows the replacement of its head of footwear with Ryan Drew, a veteran Under Armour executive who had been running its basketball operations, and the sabbatical of co-founder Kip Fulks, as it builds a new team under Patrik Frisk, the COO it hired in June from The Aldo Group, a footwear company.

Footwear and digital have both proven to be disasters for Under Armour, which thought it could go head-to-head with Nike Inc (NYSE:NKE), whose market cap is now almost $100 billion, nearly 20 times that of UAA stock.

UAA Stock Gets Negative Chatter

The chatter around the stock remains negative. Laurence Meyers calls Under Armour a “poster child for the death of retail,”  as the failure of Sports Authority in 2016 set the stage for its recent problems. Sales in the U.S. were down 12% year-over-year in the most recent quarter as the company faced distribution struggles.

Luke Lango thinks UAA stock can fall a lot further, given that North America represents 75% of the company’s revenues and Adidas AG (ADR) (OTCMKTS:ADDYY) is the only company here keeping up with Nike in channel checks at major shoe retailers.

Josh Enomoto says Under Armour “still has a lot to prove” especially regarding basketball star Stephen Curry, whom Under Armour signed to a rich endorsement contract. Curry’s shoes are not flying out of stores the way his shots are flying into baskets.

Laura Hoy insists that UAA stock should not be bought until it fixes problems with its inventory, its lagging popularity in the American market and creates a more stable management team. So far only one of those problems has been addressed.

Why Buy UAA Stock?

Under Armour is now priced at barely more than its annual revenues, while Nike is priced at nearly three times its annual revenues. Despite its highly-publicized problems, however, Under Armour is not shrinking. The terrible 2017 looks more like a base to me than the beginning of the end.

Still, that’s a speculation. Under Armour has put the pieces in place to address its problems, but it has yet to prove they are behind it. Analysts are right to be skeptical of Under Armour, but your biggest gains as an investor will come from going in where others fear to tread.

If you can wait a few years and have some mad money you can afford to lose, Under Armour might be a nice bet to make.

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 article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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