The damage done on Tuesday to Under Armour Inc. (UAA) , which was down nearly 24% on the day, was severe after a downward revision of its outlook. The stock now has fallen nearly 75% since topping out in mid-2015 -- its "can do no wrong" days -- and now is trading near a five-year low. The company has made its share of mistakes, trying to do too much in some respects and not enough in others, in an industry that appears to be all but in a depression. This may be Under Armour's perfect storm.
Issues for the stock are exacerbated as the growth story has evaporated, which means the growth crowd is abandoning the name. When that happens, multiples compress and few are willing to pay the 50 to 100 times earnings they might have previously. But with Under Armour currently trading at 29 times next year's earnings -- a consensus number that may head lower -- its shares are still not cheap. That puts Under Armour in a no-man's land of sorts -- no longer a growth story (although it may get back there someday), but not yet a value name, either.
There's no doubt the company's story is a great one. If you've ever had the opportunity to hear founder, chairman and CEO Kevin Plank tell it, this company is a great American entrepreneurial success from very humble beginnings. It became a multibillion-dollar market cap company with nearly $5 billion in annual sales and solid profit margins. It was held in high regard among investors who paid a premium to own it.
Somewhere, the company began to lose its way, perhaps suffering from overconfidence and believing it could succeed in anything it tried -- just stick that familiar and iconic Under Armour logo on anything and consumers will buy it. Maybe, just maybe the push into footwear was a mistake. Maybe the move to sell product through Kohl's Corp. KSS and others was a mistake. Perhaps Under Armour saturation and fatigue set in with the consumer, who at one point knew the company solely because of those cool athletic shirts made of that special material.
Now the company has much to prove. Can it gain back investor confidence, innovate while sticking to what it does best, and not try to be all things to all people? I don't think it's game-over for the company at this point, although the stock may continue to suffer (as I noted yesterday, in a year when most stocks rose, those that have suffered may come under more pressure from tax-loss selling at year-end).
Personally, I'd probably pay 20x next year's earnings for Under Armour, which would put the stock in the $8.50 range. That's another 32% haircut from current levels, and it also is based on current 2018 consensus earnings estimates of 43 cents a share, which may be cut. I'm not sure the stock will reach those levels, but for now it's in stock purgatory -- not a growth story, and not a value story.
I do believe Kevin Plank does have the wherewithal and the ability to right this ship, as difficult as that may be. Re-attracting the growth investors who pushed shares into the stratosphere based on lofty expectations will not be easy, however.