Under Armour (NYSE:UAA) was the men’s apparel company that made spandex cool.
The company’s form-fitting athletic wear was a huge hit a decade ago, but the last few years have been a series of speed bumps. Under Armour lost distribution when Sports Authority closed, its basketball shoe line endorsed by Stephen Curry is second-rate, and CEO Kevin Plank’s mid-life moves to solidify his control with dual-class shares and, then, to live the celebrity life, has made the stock volatile.
My conclusion is that Under Armour is a stock you trade, not one you invest in.
But in 2019 traders may find some things they like. A strong end to 2018 has the shares trading at just 17 times operating cash flow, and a new endorser with a new style may yet get the company out of its doldrums.
The Rock has arrived.
Style Through an Icon
The Rock is former-wrestler-turned-actor Dwayne Johnson, and his “Project Rock” gym clothes are a departure for the company. They’re untucked and loose, rather than form-fitting. He’s become the best-matched celebrity endorsement in fashion.
It’s a departure for Under Armour, too, because Johnson isn’t just an endorser. Like the hip-hop stars working with Adidas (OTCMKTS:ADDYY), Rock has been actively driving the brand since signing with it in 2016, becoming increasingly important to the company.
The first shoe Johnson endorsed for Under Armour sold out in 24 hours — and shoes have been notoriously difficult for the company, whose former chief designer Dave Dombrow failed repeatedly in the area, at both Under Armour and Nike (NYSE:NKE). He was recently replaced by Kasey Jarvis.
The Celebrity Dance
Athletic apparel today is a constantly-shifting dance of design, fashion and celebrity, which few understand as well as Johnson. It’s also a global business. Under Armour’s business has been saved by international expansion, as with a recent opening in India.
Under Armour’s Christmas quarter gave the stock a pop, with net income of $4.23 million, 9 cents per share, on revenue of $1.4 billion. The big news was Asia Pacific revenue, up 35% year over year, which offset a 6% decline in North America.
The numbers have made Under Armour stock attractive to people who read charts. Under Armour often outperforms in the spring quarter, and the Project Rock line is designed for people who are working out to look good.
The CEO Problem
The biggest headache at Under Armour may be the original source of its strength, CEO Kevin Plank.
Plank has been distracted by a 50-acre real estate development at Port Covington in Baltimore that has been repeatedly delayed. His pay packet is becoming outsized. His personal relationships have come under question.
Plank has become a Baltimore paterfamilias whose mid-life moves have gotten into the tabloids once too often. This has given the executive suite a Game of Thrones look .
If Under Armour is to become an investment again, its founder-CEO needs to start acting his age and focus on a strategic vision.
The Bottom Line on UAA Stock
As I wrote in February, Under Armour is a trader’s stock, a gambler’s stock, rather than a stable investment. When the company was near its 2016 peak I suggested it could buy Lululemon Athletica (NASDAQ:LULU), then going through its own CEO troubles.
Today, Lululemon could buy Under Armour twice over.
That wouldn’t be a bad idea. It’s not going to happen, but it wouldn’t be a bad idea. Alternatively, Under Armour could promote The Rock from celebrity endorser to CEO. That’s not going to happen either.
Until something strategic does happen, you continue to trade Under Armour and invest in Nike.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.