Is Under Armour Stock a Buy at These Levels?

Under Armour, a sports apparel and equipment company, was ready to give Nike and Adidas some competition. When was the company founded? Under Armour stock has dropped a lot year-to-date. Is the stock a buy after the fall? What are the stock’s future prospects?

Under Armour is a U.S. sports equipment company that's based in Baltimore. The company is mainly involved in developing, marketing, and distributing sports apparel, footwear, and accessories for men, women, and children. 

Under Armour was founded in 1996 by Kevin Plank. Plank was a former football player at the University of Maryland. The idea for Under Armour was born because Plank was tired of sweating through his apparel at practice. He came up with a concept to keep players' clothing light and dry in all climate conditions. Plank developed a new synthetic fabric, which he called HeatGear. Later, the company developed other gear lines including ColdGear and AllSeasonGear. Currently, Under Armour one of the major players in the sportswear market. 

Under Armour went public in November 2005 and raised $157 million in the IPO. The stock price doubled on the first day of trading. The company achieved $1 billion in annual sales in 2010. 

Plank is still the largest individual Under Armour shareholder with nearly a 16 percent stake. As of March 2020, he owned 181,608 shares of Class A stock (with voting rights) and 33.8 million shares of Class C stock (without voting rights). Plank’s stake has about 65 percent voting power in the company. The prominent Under Armour shareholders include:

• Patrik Frisk, president and chief operating officer
• Michael S. Lee, former chief digital officer
• Harvey L. Sanders, independent director
• Kip Fulks, strategic advisor

Currently, Under Armour doesn't pay a dividend. The company hasn't paid a dividend in its almost 24-year history. At times, management has been asked if they plan to issue dividends to shareholders anytime soon. The company has maintained that it's focused on growing its balance sheet. Shareholders shouldn't expect dividends in the foreseeable future. 

In one of the company’s SEC filings, management said, “We currently anticipate that we will retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. In addition, our senior secured credit facility limits our ability to pay dividends to our stockholders.”

Currently, 33 analysts cover the stock. Among the analysts, four have a buy rating, 19 have a hold rating, and ten have a sell rating on the stock. The average consensus target price of $13.25 implies a potential downside of 11.5 percent.

Overall, we get a bearish picture of the stock’s outlook going by the analysts’ ratings and target prices. There could be several reasons for the bearish outlook. A more than 40 percent drop in the stock price year-to-date might be enticing for some investors but they should be cautious. The stock price has fallen for good reason. 

Under Armour's revenue growth is slowing down after growing strongly until about 2017. Management hasn't inspired much confidence about the future. For 2020, they expect a drop of 20 percent–25 percent. The company has struggled to keep up with the e-commerce trend, which is dominating the retail space.