Under Armour (NYSE: UAA)

Updated: Mar 17, 2021

Under Armour - a fallen apparel titan ready to make a comeback


At People’s Capital, we believe Under Armour represents an opportunity to capitalize on a rebounding brand in a rebounding retail market.


Reasons we love Under Armour:

  • Under Armour is a good company that has had a rough few years (down 70% since 2016). We can take advantage of this situation and buy when the stock is cheap.

  • The pandemic forced Under Armour to address the main factors of its decline - poor marketing, management, and leadership. We believe the new direction of the company will yield a return to Under Armour’s past success.

  • UAA has a reasonable valuation in a market full of hyperinflated prices, and has potential to increase significantly in the long term when compared to peer companies.

  • UAA has not returned to pre-pandemic levels

  • UAA trades at a P/S ratio of 1.6, whereas average P/S of main competitors is 3.6.

  • The “athleisure” trend (athletic gear designed to also be casual, comfortable apparel) has continued to accelerate due to the pandemic. Under Armour has not capitalized on this trend as successfully as competitors (Nike, Adidas, etc.) in the past. Under new leadership and marketing strategies, we believe under Armour will tap into this highly lucrative area of apparel.

  • Under Armour partially relies on in-person retail and has been significantly harmed by the pandemic. Once countries like the United States are vaccinated in the summer, Under Armour’s earnings will likely increase significantly.

Risks:

  • Under Armour's past four years have been poor by every available metric. We believe the company is turning a corner, but there is no guarantee the new marketing and leadership will change the performance or overall stock trajectory of the business.

  • Due to negative and highly volatile earnings in the past four years, creating a financial model that reflects the recent changes at the company is nearly impossible. (That is to say, math can’t help us here).

  • The unpredictable conditions the pandemic has brought to the financial markets is far from over. UAA could see a significant decline in share price before rising to meet our price target in the next three to five years.


Full Report:

Under Armour (NYSE: UAA) was once an apparel titan. At their peak in 2015, Under Armour was riding high on four years of tremendous growth, with their market capitalization sitting at 28.1 Billion dollars and a share price of $50. Since 2016, UAA has suffered from their sudden expansion with poor corporate structure, management, and marketing. Earnings have dipped into the negative several years in a row, and the stock price of UAA has sunk to as low as $10 during the pandemic.


However, the pandemic has forced Under Armour to make the difficult decisions required for the company to return to growth - a new CEO, Patrik Frisk, was installed in January of 2020. The company is working to reduce the sale of their products in budget or outlet stores. This change is an attempt to return to their previously successful business model: higher profit margins and a premium image. Under Armour is also backing out of expensive and largely ineffective university sponsorships, and instead focusing marketing efforts on lower cost, higher efficiency methods of advertising such as snapchat and instagram ads. Furthermore, Under Armour has launched their “Curry Brand” with NBA superstar Stephen Curry in an attempt to emulate Nike’s success with the Jordan brand. Although they have been unable to capitalize on the “athleisure” trend in fashion in the past few years, under new leadership and marketing strategies there is potential for Under Armour to tap into this highly lucrative segment of the apparel market. In short, Under Armour is finally addressing their branding and corporate structure issues, while continuing to make high quality, premium athletic apparel, shoes, and sports gear the company is known for.


Comparative analysis suggests Under Armour still has room to run. UAA has a P/S ratio of 1.6, whereas the average P/S of peer companies (Adidas, Nike, Puma) is 3.6. In the long run, with the changes described above, the price of UAA could rise to meet a 3.6 P/S ratio.


Under Armour partially relies on in person retail for selling products. Due to the pandemic, Under Armour’s in person sales have significantly decreased, which has been reflected in the stock price. However, as countries such as the United States become vaccinated through the summer, we believe Under Armour will recover its in person sales and continue to build upward momentum in its stock price.


In light of these changes, at People’s Capital, we believe Under Armour could return to strong positive earnings and a share price of $40 in the next three years. It should be noted that this is a long term position, on a 3-5 year horizon. In the short term, depending on stimulus, the state of the pandemic, and general instability in the market, UAA could see declines before rising to our price target.


Best,

People's Capital


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