Temptation Under the Armour
OK, so I have a bit of a tendency to buy popular growth stocks on pullbacks -- if I believe the growth story, my knee jerk reaction is often to pick up a few shares or a few call options when what appears to be a temporary setback brings the share price down.
This is what happened when I doubled my Google holdings at $510 or so when their earnings disappointed slightly. And though I haven't gotten around to writing about it yet, this is the same thing I did with Apple recently when the "sell the news" drop hit AAPL shares when the iPhone price cut freaked everyone out and let me pick up shares in the mid-$130s (perhaps it's for the best that I didn't write about it ... who on earth wants to hear yet another blogger talking about Apple, by far the most popular stock for online discussion? I can't say that I have anything new to add to that debate).
And I'm tempted again -- this time for a stock that I had derided for quite a while even though it's a "local boy makes good story."
This time, it's Under Armour -- founded just down the road from me by University of Maryland grad and mediocre football player Kevin Plank, who has turned out to be an excellent marketer and athletic clothing trendsetter.
I thought Nike would chew them up and spit them out, and that the introduction of the compression clothing and other Under Armour specialties by Reebok, Nike, and others would kill the market for this young upstart. Clearly, I was wrong ... at least so far. They have created a powerful brand in just a couple years, and they are probably causing Nike to panic a little bit with their entree into footwear. Nike was built on the running craze of the 1970s and the basketball golden age (also called the "Michael Jordan" age) of the 1980s and early 1990s. Perhaps Under Armour will be the first company to successfully build an athletic brand with mass appeal that's based on football, the sport with the broadest appeal.
I don't really know if they will succeed, but the latest share dip has me considering a purchase. In the short term, here's my logic:
The shares were downgraded in the middle of last week by an analyst at UBS lowered his rating and price target. But the real thing that caught my attention was this:
They lowered the price target because of weather.
Now, I'm the first one to laugh when any kind of company, especially a retailer, blames the weather for poor results. If Under Armour had released earnings and blamed the lack of a cool September for flagging product sales, I might find any resultant dip to be a buying opportunity, too ... but I would probably find it easier to resist the temptation, because I would lose a fair amount of respect for management.
So essentially my point is this: When an analyst gives a weather-related excuse for a short term possible sales dip, I get very tempted to buy. When a company gives that same excuse, I am more likely to make fun of them. Or at least, to take advantage of selling by investors who believe that one month's sales makes or breaks an investment.
Weather happens every year -- warm weather, cold weather, it all evens out in the end. If Under Armour needs a few cold days to spur sales of some of their garments, I am absolutely certain that those cold days will eventually come. If they come in October instead of September, I can live with that.
I haven't talked at all about the reasons I still am cautious about Under Armour -- man oh man are the shares expensive -- the forward PE, weather or no weather, is still 45, which is pretty big for a company that the analysts think will only grow earnings by about 30% next year. And the share price did fall back by 8% or so on the downgrade, but we're still up near the all time highs for the stock. Analysts have not consistently lowballed the earnings, so you can't say that they always blow out their estimates, either -- they did last time around, but the analysts were prety close in the two quarters before that.
So this is really about faith in a brand, and a vision for long term growth. Under Armour is just about a tenth the size of Nike right now, and growth that stays around 20-30% for a decade is certainly worth more than a 45 PE ... but will that happen?
I don't know ... but, short term, I'm tempted. I'd like to see some more temporary bad news hit the shares a little harder, but I just might buy a bit of this one before too long.
Full disclosure: As of this writing, I do own shares of Google and Apple, but no other companies mentioned here.
This is what happened when I doubled my Google holdings at $510 or so when their earnings disappointed slightly. And though I haven't gotten around to writing about it yet, this is the same thing I did with Apple recently when the "sell the news" drop hit AAPL shares when the iPhone price cut freaked everyone out and let me pick up shares in the mid-$130s (perhaps it's for the best that I didn't write about it ... who on earth wants to hear yet another blogger talking about Apple, by far the most popular stock for online discussion? I can't say that I have anything new to add to that debate).
And I'm tempted again -- this time for a stock that I had derided for quite a while even though it's a "local boy makes good story."
This time, it's Under Armour -- founded just down the road from me by University of Maryland grad and mediocre football player Kevin Plank, who has turned out to be an excellent marketer and athletic clothing trendsetter.
I thought Nike would chew them up and spit them out, and that the introduction of the compression clothing and other Under Armour specialties by Reebok, Nike, and others would kill the market for this young upstart. Clearly, I was wrong ... at least so far. They have created a powerful brand in just a couple years, and they are probably causing Nike to panic a little bit with their entree into footwear. Nike was built on the running craze of the 1970s and the basketball golden age (also called the "Michael Jordan" age) of the 1980s and early 1990s. Perhaps Under Armour will be the first company to successfully build an athletic brand with mass appeal that's based on football, the sport with the broadest appeal.
I don't really know if they will succeed, but the latest share dip has me considering a purchase. In the short term, here's my logic:
The shares were downgraded in the middle of last week by an analyst at UBS lowered his rating and price target. But the real thing that caught my attention was this:
They lowered the price target because of weather.
Now, I'm the first one to laugh when any kind of company, especially a retailer, blames the weather for poor results. If Under Armour had released earnings and blamed the lack of a cool September for flagging product sales, I might find any resultant dip to be a buying opportunity, too ... but I would probably find it easier to resist the temptation, because I would lose a fair amount of respect for management.
So essentially my point is this: When an analyst gives a weather-related excuse for a short term possible sales dip, I get very tempted to buy. When a company gives that same excuse, I am more likely to make fun of them. Or at least, to take advantage of selling by investors who believe that one month's sales makes or breaks an investment.
Weather happens every year -- warm weather, cold weather, it all evens out in the end. If Under Armour needs a few cold days to spur sales of some of their garments, I am absolutely certain that those cold days will eventually come. If they come in October instead of September, I can live with that.
I haven't talked at all about the reasons I still am cautious about Under Armour -- man oh man are the shares expensive -- the forward PE, weather or no weather, is still 45, which is pretty big for a company that the analysts think will only grow earnings by about 30% next year. And the share price did fall back by 8% or so on the downgrade, but we're still up near the all time highs for the stock. Analysts have not consistently lowballed the earnings, so you can't say that they always blow out their estimates, either -- they did last time around, but the analysts were prety close in the two quarters before that.
So this is really about faith in a brand, and a vision for long term growth. Under Armour is just about a tenth the size of Nike right now, and growth that stays around 20-30% for a decade is certainly worth more than a 45 PE ... but will that happen?
I don't know ... but, short term, I'm tempted. I'd like to see some more temporary bad news hit the shares a little harder, but I just might buy a bit of this one before too long.
Full disclosure: As of this writing, I do own shares of Google and Apple, but no other companies mentioned here.
This article posted by One Guy @ 9/28/2007 04:47:00 PM 2 comments
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