As a value investor, I am no stranger to buying on weakness. Sometimes, when most others are selling, I may be a buyer if I believe that the punishment does not fit the crime. The markets occasionally both over-reward perceived success, and over-punish companies in distress, but also often get the story right, which is the big risk for those of us that think we can identify bargains.
While I've typically been a patient owner - holding for what in today's terms is an eternity - I've had to learn to become a more patient buyer, especially when dealing with more well-known and well-followed names. In those cases, I've become more apt to believe what the markets are saying, or how they are interpreting events. When a small or micro-cap name, with little or no analyst coverage gets nailed due to bad news, a bad earnings release, or what have you, markets are less efficient in my view. This can result in wild price swings, and opportunities to take advantage of market inefficiencies that are not as prevalent with the household names.
Last year, I was tempted by Under Armour (UAA) , and its fall from the low $50's in late 2015 to below $20 by the following spring. However, I decided not to bite. Since then, shares continued to fall, all the way to below $12 in early October. From there, shares have recovered back to the $16 range as some investors decided that all of the bad news was overdone. I was not among them, and have not participated in the 33% upside since the latest "bottom". Even at $12, it simply was not cheap nor compelling enough to take a position.
It's difficult to get an edge on a name like UAA, which is followed by 28 analysts. New information is quickly disseminated into the markets, and quite picked-over. While I believe there is great value in the brand, in my view, it's still hard to justify paying 58 times 2019 consensus earnings estimates. With such a large number of analysts comprising that consensus, the odds of an earnings surprise are diminished, unless of course, more than two dozen analysts are off the mark with their analyses.
I honestly don't know what a fair price is for UAA at this point, but at 30 times next year's earnings, this is an $8.50 stock. Competitor Nike (NKE) , by the way, which is covered by 37 analysts, is currently trading at 25 times 2019 consensus estimates.
Maybe the value of UAA's brand can justify a forward PE of 58, or maybe the name has not fully capitulated. Either way, I'm still not interested in owning this one at this point.