Under Armour Inc (NYSE: UA , NYSE: UAA ) stock has been halved in just four months. Two straight earnings reports have led to significant selloffs of both UA stock and UAA stock. The move to a triple-class system in April, and new ticker symbols announced in November, haven’t helped.
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But the key problem remains a business that has disappointed the market so far over the past few quarters.
That said, the disappointment has come in part from expectations for Under Armour stock that were too high, rather than performance that was objectively poor. UA still grew revenue 22% in its fiscal 2016. Non-GAAP earnings per share rose nearly 10%, adjusting for the stock dividend earlier in the year.
Even in a fourth quarter whose results sent UAA stock down more than 20%, sales increased 12%, with international revenues up 55%.
As poorly as the stock has performed of late, though, this isn’t a broken company, nor is it an unprofitable one. That has led to speculation that Under Armour might become a takeover target.
That makes sense at some point … but not yet.
Why An Under Armour Takeover Is Unlikely Soon
“You know, I think a lot of people bet against Tom Brady the other night, too.”
That’s what Under Armour CEO Kevin Plank told CNBC soon after the company’s fourth-quarter earnings report. A reference to the Patriots’ historic comeback hardly sounds like a metaphor for a founder looking for the exits. Instead, it sounds as if Plank is intent on Under Armour making a similar comeback itself.
And the catch with Under Armour is that a decision to sell is Plank’s and Plank’s alone. His class B shares entitle him to 10 votes per share, meaning he has roughly 65% of voting power, according to the website. That voting power also makes the valuation gap between Class A shares (UA) and Class C shares (UAA) quite odd. Class A shares get one vote per share; Class C shares get none. But Class A shareholders as a group remain a minority, subject to Plank’s desires.)
There’s little reason to imagine Plank will sell Under Armour now, with shares down nearly two-thirds from all-time highs. The former college football player is intensely competitive, and like many founders, devout in his belief in himself and his company. He’s also just 44 years old — far from the age where he might be ready to cash in his chips and move on.
That said, there is a scenario where Under Armour may decide that selling out to or merger with a larger company makes some sense.
The brick-and-mortar retail landscape continues to change amid online competition. Under Armour customers ranging from Macy’s Inc (NYSE: M ) to Finish Line Inc (NASDAQ: FINL ) are closing stores aggressively. Both scale and e-commerce are more important than ever; and in both areas, Under Armour lags its ultimate rival, Nike Inc (NYSE: NKE ).
Should Plank change his mind, there no doubt will be suitors for Under Armour.
Who Might Take Out UAA Stock?
Should Plank change his mind, there no doubt would be a number of interested companies. PVH Corp (NYSE: PVH ) and VF Corp (NYSE: VFC ) both own male-oriented brands. PVH has Calvin Klein and Tommy Hilfiger; VF owns North Face, Timberland, Lee and Wrangler, among many other brands. Under Armour would seem to tuck in nicely to both companies’ portfolios.
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