There Is Absolutely No Reason to Bother with Under Armour Inc Stock

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Under Armour stock - There Is Absolutely No Reason to Bother with Under Armour Inc Stock

Source: SandyDover via Flickr (Modified)

Under Armour Inc. (NYSE:UA) put up a good quarter, nobody seems to be paying any attention to the fact that the company reported $88 million loss. You can’t exactly say “why bother?” about Alphabet Inc. (NASDAQ:GOOGL), but you can certainly say that about Under Armour stock.

Why bother at all with the retail stock? Particularly the clothing retailers? With limited exceptions, retail is under assault in this country by online and ecommerce in general, and Amazon.com Inc. (NASDAQ:AMZN) specifically.

Clothing retailers are perhaps one of the most dangerous and risky sectors to invest in. The sad truth is that consumers are notoriously fickle. Far fewer consumers rely on utility than rely on style. People want to look good. People want others to think they look good. That’s true whether they are buying everyday clothes or workout clothes.

So investors who are crazy enough to be purchasing clothing retailers all are putting unnecessary attention towards Under Armour. There’s nothing special about you a stock. Right now it is a company that is in desperate need of transition, and analysts are placing far too much optimism in the fact that the company’s international sales have been doing very well.

A Look at Under Armour Stock

This is what we see from almost all companies, especially retailers. They begin their first few years trying to grow domestic operations, and then they move overseas. They tend to move overseas when domestic growth starts slow. So what we see is an initial run-up in the stock as domestic growth numbers impress.

Then those numbers invariably decline, particularly when it comes to sports and clothing retailers, because there’s so much competition. As that growth lags the stock starts to decline. Then the company starts camping up its international sales and investors suddenly get all excited about double-digit growth internationally. But that’s to be expected.

Yet when you start to look underneath the hood and look at the overall numbers of the company, you realize that it still trading for an unreasonable valuation.

While investors are trying to decide how excited they should be about the most recent earnings report from Under Armour stock, everyone seems to be overlooking the fact that Under Armour reported an $88 million loss in the quarter and $48 million loss for the entire year.

Let me repeat: Under Armour stock had a quarterly and annual loss. It is not making money. Investors can talk all they want about fantastic international growth, but Under Armour stock is losing money.

The Bottom Line on Under Armour Stock

Why bother?

I’m the first guy to jump into a deep value situation. But that’s not what we have here. A deep value situation is when a company like EZCORP Inc. (NASDAQ:EZPW) is trading at $3 a share when I know that their domestic pawnshop business is worth $9 a share. Under Armour stock is valued at $6.5 billion… And reported a $50 million loss last year.

The UA stock price was six times higher than it is now. That’s a valuation of $40 billion.

Valuation didn’t make any sense then and it doesn’t make any sense now.

Why bother?

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/ua-stock-why-bother/.

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