I am constantly on the hunt for value plays. Sometimes I'll reject an idea that is not all that compelling and file it away for future reference. These often are names that have been beaten down, and the objective is to determine whether the market's punishment has been greater than what is deserved. In such cases, I may take a position. The market has a habit of both over-rewarding stocks with good news and over-punishing those with challenges; these inefficiencies can create great opportunities, and it is one of the aspects of investing that makes it all so interesting.
Last April, I wrote about Under Armour Inc. (UAA) , which at that time was down more than 50% over the previous year. A disappointing fourth-quarter earnings report in January sent the shares down 26% in one day alone. As much as the stock had been hammered, at the time it did not seem cheap enough to me. I've always liked the story and have been impressed with founder Kevin Plank (despite all of the knocks he has taken in the press recently), but the value just was not there in my view.
Fast forward nearly six months, and Under Armour has fallen another 17% despite mildly positive earnings and revenue surprises the past two quarters. However, margins continue to slide, company revenue guidance was cut and the stock continues to be hated, as has apparel in general. Any premium the stock has enjoyed from its name and story is drying up, and the growth crowd seems to be moving on, although it has not completely capitulated.
Some of the above factors often might cue my entry into a name, but only if the price is right and if there is significant enough upside to effectively bottom fish in a distressed situation. In Under Armour's case, I still don't believe that the price is right to take a position, unlike what I did with Hibbett Sports Inc. (HIBB) . (While I took a position in Hibbett based on fundamentals, Real Money columnist Bruce Kamich is not a fan of the name based on the technicals).
Under Armour, down nearly 60% over the past year and almost 45% year to date, currently trades at 36 times next year's consensus earnings estimates. Net profit margins, which were in the 7% range in 2013, were 4.1% last year and are 4.4% on a trailing 12-month basis. As far as this stock has fallen, it is still not cheap enough for this dumpster diver to be interested. It might get there, but only time will tell.
So, I am filing this one away, again.