Pre-pandemic Under Armor (UAA) was a bit of a darling stock. It reached $27 in July 2019. Its now trading at $7. A fall of 74% in just under 5 years. Is it a buy? I think it is and here's why (the short and sweet version):
Valuation
UAA is cheap on every metric : P/E 8, P/S 0.56, EV/EBIT 12.5
Market Cap:
UAA has a market cap of only $3b (Nike's is $137b). That's borderline small cap territory. Even boring Puma's market cap is more than double that of UAA
Fundamentals:
UAA has a good balance sheet with a debt to equity ratio of 31%. Four years ago it was at 87%. It also has a net profit margin of 7% – it's highest for years
Ownership
Founder/CEO Kevin Plank owns 12% of UAA. BDT Capital Partners owns 10% and has been steadily building its stake. BDT is a PE firms with a seemingly good record of successful turnarounds. Bryon Trott (the CEO of BDT) is known to be Buffett's favorite banker.
Stock price
I already mentioned this at the start but the stock currently trades at 13% lower than the price at the Covid crash
Brand Awareness
Scores 88% in the brand awareness according to Statista
So sounds like a slam dunk,. Not by any means. UAA has had quite a few problems. Eg:
Management:
UAA has had 3 CEOs in four years, not a good sign,
Inventory Management
UAA had a major issue with overstocking which forced to deeply discount its inventory, with obvious implications to the brand.
Brand Likeability
Only scores a lowly 41% according to Statista.
UAA has issues that its still needs to resolve and constant turnover of senior management doesn't help. BDT's involvement should help keep a steady reign on the ship and hopefully turn around a brand which is well known, but seems to be a little lost. At current valuation there looks to be a reasonable margin of safety and its solid balance sheet should give it some resilience.
Disclosure: I'm long UAA and this is a small position for me (1.5%). My holding is currently down 7%
