Under Armour stock has seen a downward trend at the end of 2015 and especially in the last five days (as seen above). Today, UA stock all but plummeted. Here’s why, from Fool.com, a stocks and investing site:
The athletic apparel specialist is down after a negative analyst note. Here’s what investors need to know.
What: Shares of Under Armour (NYSE:UA) fell as much as 10% Monday afternoon after Morgan Stanley analyst Jay Sole downgraded the stock.
So what: Specifically, sole changed his rating on Under Armour shares from equal-weight to underweight, and reduced his per-share price target from $103 to $62 — a roughly 10% discount to Under Armour’s price as of this writing.
To justify his bearishness, Sole cited data from retail channel reporter SportScan that suggests Under Armour is “losing market share for the first time in 3 years in apparel and, more surprisingly, ASPs are falling at an accelerating pace.”
Sole elaborated:
Both trends are more pronounced in women’s apparel, despite major marketing investment in this division last year. Though warm weather surely explains some of this, we think UA may be reaching maturity in US apparel faster than previously thought. Though we remain constructive on UA’s int’l opportunity, we don’t think the shares are priced for a US slowdown.
In addition, Sole noted Under Armour’s running footwear prices are down 20% since January, compared to 4% for the industry overall, calling the “change in trend” a “major concern” that could erode Under Armour’s premium brand image.
Now what: It’s hard to argue Under Armour stock isn’t expensive by any traditional metric, especially with shares trading around 70 times trailing-12-month earnings and nearly 51 times next year’s estimates even after today’s pullback.
At the same time, however, I’m not convinced Sole’s observations are entirely on-base. For one, Under Armour already warned in last quarter’s report that gross margin would suffer during the holiday season, primarily it works to aggressively clear excess inventory from its fast-growing footwear business and start the year with a clean slate.
That said, losing market share in women’s would be concerning on the surface, especially as Under Armour maintains a goal of making its women’s business larger than men’s over the long term. But also during last quarter’s call, Under Armour CEO Kevin Plank pointed out their effort to do so is still in its very early stages.
In fact, Plank single out Women’s as an area where “frankly, we now need to be more aggressive,” as much of its growth there so far was accomplished with relatively minimal effort and resources. As recently as a year ago, for example, Plank stated the company had “just a handful of people” who were effectively working on women’s footwear “as a part-time job,” while larger competitors like Nike (NYSE:NKE) have hundreds of full-time employees tackling the same task.
At this stage, then, I think it’s premature to say these developments are part of a longer trend. And unless Under Armour demonstrates otherwise, I think investors who take advantage of this pullback stand to be rewarded over the long term.
I’ve been following it as well. With more and more companies getting signature lines and models and being involved in other types of businesses its only natural that UA would drop. Apple does that same thing whenever they announce new expensive hardware. UA Golf needs an original Spieth(sp?) Line, they need a legit style line, and they need more than just athletes wearing standard plain workout clothes. Also, a $400 scale/watch/band is a BIG step and could backfire as their UA health app is nowhere near Nike’s.
All that being said the only clothes I wear for workouts are UA…or those sweet Walmart/Target Superhero shirts cuz 4 Superman shirts is way better than 1 UA Alter Ego Superman shirt…especially if you own both of them already.
Very interesting article, I like the insights. Please keep making more of these in the future!
I don’t want to sound over-simplistic or perhaps ignorant, but I feel like what should be a temporary downtime (because of inventory clearance and restructuring as mentioned) would’ve probably gone unnoticed if Sole didn’t blurt anything out. If I prescribed that situation/circumstance correctly, I’d be kinda peeved in the UA camp. But he’s been sharing his stock tips as part of his grind for so long, so it’s not like had it out for them. And yeah, investors would be may be thanking Sole.
On the note of inventory, I was at the outlets in Livermore (CA), and there was like nothing that I thought commanded a pickup outside of maybe the Apollo. Curry One’s, of course, sell just fine in regular store fronts. It’s not that they make horrible things, but there’s just nothing that draws major appeal. Once/if UA really establishes signature lines, I think things can pick up.
UA should do whatever it takes and sign Ben Simmons. And maybe next year’s Thon Maker and Malik Monk.