Under Armour Stock
Trade Under Armour Stocks
Under Armour stock launched in 1996, with founder Kevin Plank selling his new moisture-wicking t-shirts out of the trunk of his car. He travelled up-and-down the East coast of the U.S. and sold $17,000 that year. Since then Under Armour has expanded into every area of athletic apparel and footwear, generating billions of dollars in annual sales.
While most of the company’s rivals have shifted their focus increasingly to fashion, Under Armour has remained committed to performance. That has actually hurt the brand, with the trend towards athle-fashion lifting brands such as Lululemon, while Under Armour has struggled to grow as fast.
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2019 was especially hard for Under Armour stock as it saw two sharp declines. The first came in August when shares fell from $27.51 to $17.76 following a mixed second quarter earnings report. Shares recovered and rallied 20% higher, only to be knocked back again in November, with shares falling 18% following the release of third quarter results, and amidst news of a fraud investigation by the U.S. Department of Justice and the Securities and Exchange Commission.
Under Armour Stock Historical Returns
While 2019 was a struggle for Under Armour stock, that hasn’t always been the case. In fact, those who purchased shares of Under Armour a decade earlier in 2009 would have realized a return of over 500% as a $1,000 investment at the start of 2009 would be worth just over $6,000 at the end of 2019. By contrast, the S&P 500 was up by just 250% over the same time period.
Under Armour stock has certainly done well in this decade, but past returns are no guarantee of future results, as the 2019 performance shows.
The Accounting Scandal
As mentioned above, shares of Under Armour plunged more than 18% on November 4, 2019, despite the company beating sales and earnings expectations for the third quarter. The reason for the selloff was news that the accounting practices at Under Armour had been under investigation since 2017 by the U.S. Department of Justice and the Securities and Exchange Commission.
Investors who bought the dip in the stock would have been well rewarded, as shares rebounded and rose from a low of $16.74 on Nov 20, 2019, to a closing at $21.905 on December 31, 2019, for a gain of almost 25% over that short period.
Will Under Armour Get past the Scandal?
Eventually Under Armour will get past this accounting scandal. December’s stock performance indicates it may have already overcome any ill will from investors. That might be due to CEO and founder Kevin Plank stepping down as of January 1, 2020. But one thing is certain. If investors don’t think they can trust the numbers being released by Under Armour it won’t matter if those numbers show growth or not.
There were some indications of a lack of confidence in those running Under Armour, and with the departure of Plank a lot of second-guessing by investors will likely be avoided, allowing the company to regain its lost trust.
Plus, the market really did over-react to the news of the investigations, which began several years ago and will likely be concluded some time in 2020. The resolution of the issue will almost surely provide a sentiment boost to Under Armour stock.
Sales Performance
While the second quarter of 2019 was disappointing for investors, the third quarter showed an improvement, coming in above expectations. Even so, because Under Armour has remained focused on performance more than fashion, it saw sales fall by 12% in the third quarter of 2019.
Even worse, it lowered its guidance for the coming quarters.
All that might change however with the news of the trade agreement between the U.S. and China. The end of the trade war is expected to improve the global economy and lead to a pick-up in consumer spending that will benefit all sports apparel brands, Under Armour included.
A Potential 2020 Rally
Given the improving trade picture, a potential improvement in global economies, and tailwinds from improvements in operational and valuation metrics, Under Armour stock could see a rebound in 2020. There is also the upcoming 2020 Summer Olympics which have the potential to breathe life back into the brand.
The one potential problem with the idea of a 2020 rally, at least for early 2020, is the nearly 25% gain made by the stock in the final weeks of 2019. That’s a huge gain in a short amount of time, and the stock may need to consolidate for some time to digest those gains.
In November 2019 Under Armour shares were trading at a discount. That would have been the opportune time to buy. Now that discount is gone, and we have to evaluate the potential for the stock based on future earnings and growth expectations.
Much of the rebound is already done in other words. That could mean time to hold and wait for the next earnings release. It could also mean it’s time to short Under Armour shares.
Two reasons to Short Under Armour
- Revenues continue to fall alongside a drop in U.S. sales. This has been ongoing since 2017, or possibly even since 2016 if you believe Under Armour padded their sales numbers that year to hide slowing sales. Which brings us to the second reason.
- The company is under investigation for fraud by the U.S. Department of Justice and the Securities and Exchange Commission. Under Armour is fighting the allegations and saying it did nothing wrong, while experts in retail say the behaviour of Under Armour is common in the sector. Still, until this issue is resolved, it will remain a headwind.
Two Reasons to Buy Under Armour
- Under Armour has been regaining significance in the U.S., helping sales and revenues recover. It may be able to boost this even more with a smart marketing campaign for the Summer 2020 Olympics.
- The company remains a powerhouse in the athletic apparel sector, with revenues exceeding $1 billion in the past quarter. That athletic apparel sector is expected to grow by 5% or more annually through 2025 and Under Armour is sure to benefit from the growth.
Also, consider the stock is trading well off its 2015 highs and looks ready to break out from what’s been a tightening range. Analysts are also beginning to warm to Under Armour, which could spark a round of institutional buying later in 2020.
What to Watch
Investors should keep an eye on the recovery in sales at Under Armour, which could be the catalyst for a rally in shares. Also, look for incoming CEO Patrik Frisk to make positive changes at Under Armour. One to hope for would be for the company to launch a line more focused on fashion, which could give Under Armour a boost similar to that seen from more fashion-focused competitors.
Also, keep an eye on the technical levels. The stock has been range bound since 2017, with the $17.35 area as a strong support level, and the $25 region as resistance. A break of either level could be significant as the start of a rally, or a sharp decline.
In Conclusion
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