At the beginning of the year, I wrote a piece on InvestorPlace detailing how I thought that shares of struggling athletic apparel maker Under Armour (NYSE:UAA) looked balanced heading into 2020. That is, UAA stock looked fully priced considering its gradually — but not rapidly — improving fundamentals. Also, further upside potential in shares in 2020 seemed limited, barring a breakout catalyst.
However, Under Armour stock may have just found that stimulant.
More than a year after signing NBA superstar big man Joel Embiid to a multi-year shoe contract, Under Armour just announced in mid-January that they will be launching a new UA Embiid 1 signature shoe in the fall of 2020. That’s big news for Under Armour because the last time the company launched a new signature shoe? February 2015, with NBA superstar point guard Stephen Curry.
Over the subsequent two years, Under Armour’s footwear sales more than doubled from $430 million in 2014, to around $1 billion in 2017 — while UAA stock soared to all-time highs.
Can Under Armour regain that magic touch with a new NBA signature shoe launch in late 2020?
I don’t think so. There are some big differences between a Curry signature shoe and an Embiid signature shoe which should make the latter significantly less meaningful. Nonetheless, there is an opportunity that Under Armour does get that magic touch back. And in the event they do, UAA stock could breakout this year.
UAA Stock Could Breakout
The launch of the UA Embiid 1 signature shoe in 2020 has given Under Armour stock a catalyst that could send shares meaningfully higher over the next 12 to 24 months.
Here’s the logic. The last time Under Armour went “all in” with a signature shoe launch was back in 2015 with rising NBA superstar Stephen Curry. Over the subsequent few years, Curry went on to win NBA championships, a few MVP awards and became one of the most celebrated icons in the game. As that happened, his shoes sold like crazy. Under Armour’s footwear sales more than doubled in less than two years, and that propelled a huge rally in UAA stock to all-time highs.
The Curry catalyst for Under Armour has since dried up. Curry’s team, the Golden State Warriors, is no longer the powerhouse they used to be. Curry is currently sidelined with a season-long injury, and he’s no longer the celebrated icon he once was. His shoes aren’t selling, and not coincidentally, Under Armour’s footwear sales have plateaued over the past few years. UAA stock has fared worse, plunging from its $50 highs in 2015 to right around $20 today.
A new NBA signature shoe, however, could right the ship for Under Armour.
Joel Embiid is a big name in the NBA world. He is an MVP candidate on a very good Philadelphia 76ers team, with a young core and decent shot of making multiple championship runs over the next few years — giving Under Armour a multi-year window to sell a lot of Embiid shoes. If they do, footwear sales will start climbing again, and therefore, so will UAA stock.
And this could all start in late 2020, so by the above logic, making this the year that Under Armour stock gets its groove back.
It Probably Won’t
Although the aforementioned bull thesis sounds good, it is unlikely to materialize.
Here’s the thing. There’s a big difference between Stephen Curry and Joel Embiid, and there will likely be an even bigger difference between how well Curry shoes sold back in 2015-16, and how well Embiid shoes will sell in 2020-21.
Curry is a two-time MVP, on a team that won several championships, and was quite literally the face of the NBA for several years alongside LeBron James. On the other side, Embiid is good; but not that good. It’s unlikely that he wins multiple MVPs, and that his team wins multiple championships. It is also difficult to believe that he becomes as celebrated and widely loved as Curry.
In other words, Under Armour got really lucky with Curry, in that they launched signature shoes right before his meteoric rise to NBA Mount Rushmore status. They likely won’t get that lucky again with Embiid.
Furthermore, big men don’t sell shoes in the NBA. It’s a fact that has proven true time and time again: Splashy, electric guards sell shoes. Relatively boring, grounded big men don’t.
Curry belonged to the first category, and Embiid belongs to the second category. As such, history is working against Under Armour with the Embiid shoe.
Overall, Under Armour will sell some Embiid shoes, but not a lot. Certainly not enough to have a Curry-type impact on the company’s footwear trajectory, and likely not enough to cause a breakout in fully valued UAA stock.
Bottom Line on Under Armour Stock
Barring a breakout catalyst, UAA stock seems balanced heading into 2020, with improving fundamentals offset by a full valuation. The full valuation will prove not so full in the event that Under Armour sells a ton of Embiid shoes in the back-half of the year, so there is an opportunity for shares to head meaningfully higher over the next several quarters.
However, that’s unlikely to happen. As such, I think the best plan of attack with Under Armour stock is to wait for a dip before buying.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
