Under Armour: At least you won’t have to pay expensive capital gains taxes
Today's Financial News - Posted March 3, 2009
Shares have dropped by over 40% so far this year, yet investors still do not see the flaws in this company’s strategy. Invest in Under Armour (NYSE:UA) only if you need to lower your tax bracket.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Before you read this article, you have to promise not to send me any hate mail, overly harsh comments or threats against my pets. If you can’t make that promise, quit reading now.
Every other time I have written about Under Armour (NYSE:UA) – admittedly my sentiment has typically been negative – my inbox has filled in record time. Fortunately, the threats were empty and my house is still standing and my dog is still alive.
I do not know what it is about Under Armour and its products, but it has something that makes investors lose their ability to think rationally. No matter how bad the economy gets or how tight consumers lock their wallets, emotion-filled investors find some excuse to rationalize buying shares of the company at even the most inflated prices.
Nearly every retailer in the country is reeling in pain, but until recently shares of Under Armour remained greatly overvalued. Even after falling by more than 40% so far this year (this is my chance to say I told you so), I cannot say the worst is over.
There is more to come.
After all, the company is still trading with an earnings multiple of over 15, using trailing earnings. Factor in the reduced earnings bound to arise thanks to a wicked recession and you begin to realize just how inflated that figure is.
For reference, look at the company’s chief competitor, Nike (NYSE:NKE) and its earnings multiple. It is barely out of single-digit territory. Why should Under Armour and its diminishing brand demand a premium ratio?
That was then, this is now
As recently as two or three years ago, I would be screaming to buy shares of the company at current prices. But Under Armoru and its products were significantly younger.
Whether it likes it or not, the company reached maturity extremely quickly thanks to the growth-snapping recession. When the economy rebounds, chances are, the company’s trendy target demographic will have moved on to another brand and Under Armour will be forced to expand its lineup or dilute its brand.
The high-flying days of revenue growth are over for Under Armour. Investors must return to rationality and accept the notion.
Even at just $12 each, shares of the company are not worth buying in this economic environment. There are better buying opportunities out there.
If you are determined to buy shares of Under Armour, do not even think about it until shares hit single-digit territory.
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