August 5, 2019 BARRON’S M5
been a wild ride for marijuana investors.
Then there is Bitcoin. “Everywhere I go,
there are Bitcoin enthusiasts,” he said. “I
was at a dinner in Lithuania, and someone
said, ‘If I had Bitcoin during World War II
the Soviets couldn’t have taken away our
wealth.’ ” Mistrust of government appears
to be embedded in the zeitgeist of Bitcoin.
Instead of Bitcoin, maybe investors
could just use the CAPE to ease fears and
sleep better at night. The return is pretty
good and maybe knowing that, based on
history, they own the cheapest stocks can
slake any urges to pile into Bitcoin to pre-
pare for the next recession. —ALROOT
Under Armour Is Under Pressure
Under Armour investors must feel like Ste-
phen Curry did after losing two teammates
to major injuries during the NBA finals.
This past Tuesday, the athletic-wear
company’s stock tumbled 12% after the firm
announced second-quarter financial results
that weren’t all bad—Under Armour beat
the Street’s earnings estimates—but in-
cluded some downbeat numbers, including
revenue that came in short. It lost an addi-
tional 4% on Wednesday.
Then, if that wasn’t enough, Under Ar-
mour dropped 6% more on Thursday after
President Donald Trump announced new
tariffs on Chinese goods.
All told, Under Armour dropped 21%, to
$21.57, this past week, a decline large enough
to make us wonder if the shares are a bar-
gain. But Curry found out he couldn’t win a
championship without two of his best team-
mates—and Under Armour shareholders
could discover the stock can’t outperform
with North American sales growth under
pressure and no detente in the trade war.
Under Armour was on top of the world
heading into its earnings report. Its stock
had gained 55% in 2019 through this past
Monday’s close, handily outperforming both
the S&P 500 and its larger competitor, Nike
(NKE), which had gained 20% and 18%, re-
spectively. Then its earnings came.
Under Armour reported a loss of four
cents a share, beating forecasts of five
cents, but sales of $1.19 billion narrowly
missed estimates of $1.2 billion. North
American sales fell 3%, to $816 million.
At first glance, those numbers aren’t so
bad. In fact, the stock jumped nearly 8% in
May after Under Armour released first-
quarter results that, in some ways, looked
like the latest ones, with revenue and earn-
ings that beat Street expectations, even as
revenue in North America, which made up
more than 70% of 2018 sales, dipped.
Back then, widening margins, declining
expenses, and international growth reas-
sured investors. No such luck this time: Un-
der Armour also lowered its full-year out-
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look, telling investors to expect revenue
growth of 3% to 4%, pointing toward ad-
justed earnings of 33 or 34 cents per share,
with expectations for North America looking
worse than previously thought.
The competition is faring better: Nike’s
North American revenue rose 7% in the
three months ended May 31—slightly more if
you leave out equipment, which made up less
than 4% of revenue. Nike trades at 27 times
forward earnings, to Under Armour’s 50.
Under Armour could have trouble hitting
its targets. Revenue growth of 3% to 4%,
whatever its sources, suggests a range with
a midpoint of about $5.37 billion—meaning
Under Armour has roughly $2.97 billion left
to go. Getting there would mean second-half
revenue growth around 5%. In the first half,
it managed closer to 1.5%.
Bulls will write off the weakness as typi-
cal earnings-related volatility. “With Under
Armour in the early stages of its five-year
plan, choppiness quarter-to-quarter is not
unexpected,” wrote Citi Research analyst
Paul Lejuez, who on Wednesday reiterated
a Buy rating and a $29 price target.
But bears don’t see many foregone con-
clusions in the outlook for the rest of the
year—and Trump’s announcement of new
tariffs adds more uncertainty to the mix.
(Under Armour relies heavily on manufac-
turing from China and other countries.) The
company didn’t return Barron’s request for
comment in time for publication.
“Under Armour will likely face challenges
reaching its long-term financial targets,”
Susquehanna Financial Group analyst Sam
Poser, who has a Negative rating and a $16
price target on the shares, wrote on Tuesday.
“Operational improvements are evident, but
cutting expenses doesn’t drive sales growth.”
In a 2018 video promoting one of his
Under Armour shoes, Curry promised “the
ultimate upgrade.” We’ll learn whether the
shares offer a similar opportunity soon
enough. —DAVIDMARINO-NACHISON
Industry Action
Performance of DJ U.S. Ind, ranked by wkly % chg.*
Utilities 0.25%
–1.19 Health Care
–1.8 Telecommunications
–2.35 Consumer Goods
–2.84 Financials
–3.46 Oil & Gas
–3.63 Industrials
–4.03 Consumer Services
–4.25 Basic Materials
–4.61 Technology
*ForbreakdownseepageM32. Source:S&PDowJonesIndices
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