Is Under Armour Inc Stock Finally Irrelevant?
Under Armour Inc (NYSE:UAA) picked the wrong time to have a bad quarter. With the market down substantially from its highs, failure to meet estimates could sink the market cap to below the $5 billion level, the point at which most professional analysts turn away from a company and find something better to cover. Fortunately, those estimates for UAA stock are modest.
After management warned of trouble, a meager profit of 1-2 cents-per-share (maybe $2-4 million) on revenues of $1.31 billion is expected after trading Feb. 13, about level with last Christmas.
Despite this, UAA stock is hanging in on hopes for a new running shoe called the Hovr, which seems to be getting a strong reaction from retail buyers. The new shoes sport sensors that track how far and how fast people run, and track wear.
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But how long can Under Armour live on hope?
So Many Problems
Under Armour has had a terrible time lately, slipping toward irrelevance in North America, which represents 80% of its sales. The stock should also be hit by the bankruptcy filing of Bon Ton Stores Inc (OTCMKTS:BONTQ), which apparently hasn’t yet paid for its inventory.
The Bon Ton bankruptcy is reminiscent of the 2016 closing of Sports Authority, which was a primary retail channel for UAA and whose bankruptcy began its downward spiral. It’s trying to come back by opening its own stores, including a new 53,000 square foot palace in Manhattan that may cost $159 million per year just for rent.
Under Armour is buying lots of ads during the current Winter Olympics and it has its logo on 16 teams’ uniforms. But even that silver lining hides a cloud — the fact that the athleisure market is no longer focused on fat people looking like athletes, but like hip hop stars.
Plank’s Control Guaranteed
But wait, there’s more. CEO Kevin Plank is distracting himself with a $5.5 billion, 235-acre real estate development in downtown Baltimore, meant to also house the company’s new headquarters. Goldman Sachs Group Inc. (NYSE:GS) recently came in as co-owner, at $233 million, but it’s still seeking $1 billion in public money as part of its financial package.
The Hovr shoes might be a reason to buy UAA stock, in anticipation of a buyout, were it not for the fact that Plank has absolute control of the company owing to a 2015 “stock split” that keeps the voting shares in his hands.
I’ve been all over the map on UAA stock. I hate that Plank retains control, because it means you can’t buy betting on a takeout, but it was so cheap in December that I recommended it. (Fortunately UAA stock hasn’t fallen below the level I suggested people buy it at and it peaked at $16-per-share a few weeks later.)
The Bottom Line on UAA Stock
You can still see people pounding the table for Under Armour stock, but please don’t count me among them.
You have a distracted CEO, a broken channel, the wrong endorsements and a running shoe that may prove popular in an aging country. You’ve also got a company tied to the North American market, when all the growth is in Asia, and you can’t push for a buyout because the CEO has foreclosed that possibility.
Of the 29 analysts still following UAA stock, only three have it rated as a buy, while 11 call it a “strong sell.” The market cap is just slightly ahead of a year’s revenue; however, that’s in a market where Nike Inc (NYSE:NKE), which some once thought Under Armour could overhaul, is worth three times sales.
UAA stock is for plungers only, in other words, and I’m not one.
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 did not hold a position in any of the aforementioned securities.
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