Under Armour has been a big part of a personal and club portfolio for many years. In a previous post I commented on how it is my biggest winner to date. After the completion of the stock split/class C spinoff I have been wondering about replacing Under Armour with something else. Shortly after the split/spinoff I did sell some of both classes of Under Armour stock but for portfolio management purposes. It had just risen in value so much that it was by far the largest single holding. Now I am considering a sell for more fundamental reasons.
In a past post regarding checklists for better sell decisions I included some items I consider when contemplating selling a security. These were that return on equity had decreased and sales growth and earnings growth have decreased from the rates at the time of the buy decision. The final item on the checklist was the Upside/Downside ratio for a current Stock Selection Guide (SSG) was below one. My analysis has 2 of these four items deteriorating. The sales and earnings growth expectations are the two that are essentially the same as when I made my buy decision. Return on equity has been slowly declining.
For the current SSG I used the following judgements:
Sales growth and earnings growth of 20%, which is slightly below analysts’ estimates.
A high P/E of 30 = 1.5 times the growth rate.
A low P/E of 20 = 1.0 times the growth rate.
For the possible low price I chose 21. This is higher than the value using low P/E times the low earnings estimate. I used 21 as it is about 70% of the current price of the class A shares (UAA). That UAA and UA have already fallen about 40% from their adjusted pre-split price was also taken into account.
With these judgement items in place the Upside/Downside ratio is 0.5, meeting another sell signal.
Since UAA did not meet all the sell signals I decided to do a bit more research. I utilized Value Line, MorningStar, StockCentral and the Equity Research Service from ICLUBcentral. The value ratios, P/E, P/B and P/S are all unfavorable when compared to its industry averages. Operating margin, net margin, return on assets and return on equity also compare unfavorably with industry averages.
Under Armour still has good potential but at this time I decided to replace it with something else. I am going to keep it on a watch list, though. Its entrance into the international market has been going well. When margins improve and the P/E ratio reaches more reasonable levels while growth levels stay good I will be looking to buy again.
Attached below are pdf versions of my SSG analysis as well as the research pages from the Equity Research Service. Finally, an SSG export file in ITK format is attached.
Russell Malley
StockCentral Community Leader
UAA SSG.pdf
(46kb) downloaded 13 time(s). UAA-RAM-20161228.ITK
(5kb) downloaded 7 time(s). UA-12-28-2016.pdf
(192kb) downloaded 8 time(s).