I want to chit chat with the folks on this board about Under Armour. This is a stock that I am enjoying, and it has been fun to listen to one of the firm’s conference calls and read through their letter to shareholders in the annual report.
They seem to be firing on all cylinders and they are a hot stock. High PE. But I like CEO Kevin Plank’s competitive spirit and his focus. He says he has a white board in his office that says “always remember to sell shirts and shoes”.
I have only 2.3% of port in UA, and one short put, July $77.50.
Personally, I have 3 young boys and their first brand requests were for clothing with the nike and UA logos.
Anyone here following this one?
Karen
Saul’s choice of SKX is much cheaper, and Cramer has had several highlights of SKX on his show (side note: I really like Cramer, btw.) Footwear is such a good business, people will always shoes, but it is competitive. I am not personally into SKX for me or my kids (their kids shoes are heavy), but it is popular, they make a lot of shoes based on a recent look at Zappos / Amazon.
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Hi Karen,
I owned this one for several years. I sold 3/4 last year and the last 1/4 this year. I think it’s a great company but the valuation is just too high. I reinvested into SKX which has by far outperformed UA since I made the switch. IMO SKX is a better buy due to high growth AND reasonable valuation.
Chris
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Hi Karen, Good question. I took a starter position in UA, I think when anirban recommended it, and decided to sell out of it and stick with SKX. Here’s why:
SKX has grown adjusted earnings from 12 cents in 2012 to $1.16 in 2013, to $2.99 in 2014. But let’s not exaggerate! Figure 100% per year. This coming quarter they predicted 95 cents to $1.05. I’m sure they expect to beat their estimates (that’s the game everyone plays). That’s up from 57 cents the year before. At $72, their PE is 24! 24!!! That’s 24!!!
Okay, say their rate of growth falls to 50%. Their price takes a hit down to $60. Their earnings for the year are up 50% (by definition) from $3.00 to $4.50.
Okay. They are earning $4.50, growing 50% per year, with a stock price of $60. That would give a PE of roughly 13, on a stock growing at 50%. How long do you think that would last? Risk seems very limited.
On the other hand, last I looked UA had a PE in the high 70’s, low 80’s. If they slow down there’s a long, long, way to fall.
JMO
Saul
PS - Not a good idea to value a company on whether the product is right for you. For example, I’ve never eaten buffalo wild wings but lots of people seem to love them.
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Anyone here following this one?
Hi Karen,
I don’t follow UA, don’t own it, and know close to zero about them, so please view my .02 below as just a general comment.
Let’s say I had $17 billion kicking around and wanted to buy UA for my grandkids. What I want to know is what kind of return I’m going to get for my investment of $17 billion. This year UA is expected to earn $1.08 per share. So if I pay the current price of $79.41 per share for UA’s outstanding shares, my yield is going to be 1.08/79.41 = 1.4%.
Now I can get a higher yield than that by buying 10-year Treasury bonds. But Treasury bonds pay a fixed rate. UA is going to grow its earnings so my yield will improve every year. Let’s say UA grows its sales and earnings every year by 30% for the next ten years. Here’s how it would look:
Year EPS Yield
---- ---- -----
1 1.08 79.41 1.4%
2 1.40 79.41 1.8%
3 1.83 79.41 2.3%
4 2.37 79.41 3.0%
5 3.08 79.41 3.9%
6 4.01 79.41 5.0%
7 5.21 79.41 6.6%
8 6.78 79.41 8.5%
9 8.81 79.41 11.1%
10 11.45 79.41 14.4%
By year ten I’m finally starting to see a decent return on my original investment. At that point UA would have about 25% more sales than Nike has today. Of course UA would have to execute to perfection for ten years – no stumbles. Plus they’d have to defy what happens when companies get larger – Nike’s earnings have been growing about 9% for the last four years.
Provided they keep growing 30% per year, after year ten I begin to hit the jackpot. That’s because of the effect of compounding. By year fifteen my return is over 50%!
Do I think UA will grow 30% year after year for the next 10-15 years? No clue. But something I’d want to get a good handle on if I was going to buy the business.
Ears
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Saul, Interesting comparison. My question is “What happened in 2012 that made SKX take off? It had gone nowhere for the previous eleven years.”
http://softwaretimes.com/pics/skx-04-04-2015.gif
I got interested in LULU and UA during the Summer of 2011. SKX was not on my radar. I bought LULU but would have done much better with UA. But one can never foresee stuff like see through pants and stupid statements by the founder and ex CEO.
Stocks like UA are always too expensive and disasters like LULU can happen to them.
Denny Schlesinger
I sold covered calls on LULU in June 2014 and I expect them to be assigned in January for a position IRR of 22%
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That’s a very good question. (re: what happened for SKX to take off?)
I also wonder about the value of the brand. I like big brands!
UA is hot, hot, hot as a brand. You will generally pay full price for UA and you’re not buying it at the discount retailer, (uh KSS) with a 30% off coupon.
Karen
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Next week the biggest most beautiful golf event of the year will be played: The Masters.
Young 21 year old Jordan Speith (American) has more Vegas money betting on his winning this #1 golf event in the world than anyone else in the tournament. His one and only corporate sponsor is UA. He will be decked out with UA logos from head to toe to golf bag. Does that remind anybody of anyone?
A young and upcoming Tiger Woods turned the golf world on fire and in turn had a huge positive impact on NIKE at one time. Speith is the new young gunslinger that is helping grow UA as NIKE once did when Tiger and Michael Jordan were in their prime.
Can UA continue their growth explosion for the next 10 years as they recruit some of the the biggest sports stars in the world and continue to be a thorn in Nike’s side? That is the $64,000 question isn’t it? A young David vs. Goliath story.
Notre Dame has recently adopted UA as their official sponsor/logo along with a host of other major colleges. Two of our grown sons want UA clothing for Christmas. UA has successfully recruited some of the biggest NBA stars. They now have their eyes on the huge international soccer market.
SKX has outperformed UA over the past 3 years by doubling the investors return. Is the runway for SKX as long as UA’s? Who knows?
Perhaps I should trim some of my UA returns (up 100% for 3 years) and invest in SKX as Gaucho has done? The odds do seem better long term for SKX, whose P/E is much more reasonable as Saul points out.
Such is the happy dilemma facing us. One thing I know for sure: I will be rooting for the young Texan next week during the Masters.
Jim
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Hello Jim,
Not sure that it makes any difference to your main points, but for the sake of accuracy, Rory McIlroy is currently quoted at 8-1 to win the Masters with Bubba Watson at 10-1 and Jason Day, Jordan Spieth and Dustin Johnson all at 12-1. With the announcement that Tiger Woods has decided to compete, I suspect that you will agree that fewer eyeballs will be on Jordan Spieth at least for the first two days.
I think you were looking at the odds for the Houston Open which is being played now and Spieth is the Vegas favorite.
Best regards,
Mike
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Hi Saul,
I have read your investing strategy and found it most enlightening.
I am a relative newcomer to investing, but eager to learn.
Obviously you spend a lot of time researching the various companies.
Do you share all the information on who you invest in, as I was unable to locate it, although it could be my lack of experience on this site.
Thanks
Hi, Ramblingman, Welcome to the board. My last end of the month summary was post #6928. But I’d strongly urge that you don’t just buy what I buy but use the tools you get from me and others on this board to figure out for yourself what you want to invest in. Remember also that I may make changes during the month and I just post my positions once a month.
Saul
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PS - Not a good idea to value a company on whether the product is right for you. For example, I’ve never eaten buffalo wild wings but lots of people seem to love them.
Hi again Karen, I just found this quote on another board, and I just had to swipe it, as it put what I had said even better:
In my opinion, one of the biggest mistakes many investors make seems to be that they will assume that their own personal habits or their own preferences will be exactly how the “market” in general will do things. I learned long ago not to watch so much how I react to goods, products or services but to watch how others react.
However, in your most recent post I saw this, indicating, to me at least, that your mind is made up, so I hope it works out for you.
UA is hot, hot, hot as a brand. You will generally pay full price for UA and you’re not buying it at the discount retailer, (uh KSS) with a 30% off coupon.
Please remember though that there is a difference between a company doing well and a stock doing as well, if the stock price already has an enormous amount of growth factored in.
Best wishes,
Saul
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That’s the lesson, isn’t it?
BTW, I also dislike BW3. Our local restaurant has horrible, horrible service, really awful. However, my husband loves it.
This is a great conversation, I love it here!
Karen
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Please remember though that there is a difference between a company doing well and a stock doing as well, if the stock price already has an enormous amount of growth factored in.
Saul
How true. If early investors have already gotten all the future profits then the stock (over bought) is not a good investment. Currently, IMO, TSLA is in that category. One way I have of overcoming this difficulty is to wait for the big drop before investing in fast growers. The downside is that you might miss the investment altogether. An alternative is to buy in small quantities (thirds or less). Always balancing risk and reward.
Denny Schlesinger
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One way I have of overcoming this difficulty is to wait for the big drop before investing in fast growers. The downside is that you might miss the investment altogether. An alternative is to buy in small quantities (thirds or less).
Denny,
I think the best way is to be ok with missing the investment if it goes up after you don’t buy.
Chris
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I think the best way is to be ok with missing the investment if it goes up after you don’t buy.
Chris
Might not be “the best” but certainly a necessary one. Regret is a poor investment strategy along with fear and hope. 
Denny Schlesinger
One way I have of overcoming this difficulty is to wait for the big drop before investing in fast growers.
I’ve been working on developing that strategy (for a small part of my port where I am willing to take on more risk), but it is much easier said than done.
For starters, you must decide at what point a simple “drop” becomes a “big drop”. TA indicators can help with that.
Second, during that big drop, there will be a progressively larger slew of articles predicting the demise of the stock, or at least the demise of its high growth. You must be able to accurately predict what stocks will bounce back vs. which ones won’t. Again, not always easy to do, particularly with high-growing tech stocks.
With TSLA, for example, has it already experienced a “big drop” (290 to 180)? Is it still too highly valued to be a strong candidate for a bounce back? If so, at what point would it become a strong candidate? 150? 100? Or is it a fad that will never bounce back? (FWIW, my answers are no, it hasn’t yet quite met my criteria for a “big drop” but is getting fairly close, and yes, I still consider it too highly valued and hence too risky for me to buy at this time.)
Remember Krispy Kreme (KKD)? That was one that I thought was a fad and would never have expected to significantly bounce back. It fell from 50 in 2003 down to 1 2009, and then took off back to 27 in 2013. Who’d a thunk it?
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I’ve been working on developing that strategy (for a small part of my port where I am willing to take on more risk), but it is much easier said than done.
Agreed! No matter what technique you use to pick stocks and entry points, it’s never a guarantee, just – hopefully – better odds of making money.
I’ve built a watch list. Currently (April 2) it has 18 stocks with a 25% drop or more with 3DP leading the list. Of the 18 I’ve bought two on big drops: BITA and TRIP. KNDI is a long term hold, a large position that I’m not adding to.
**Ticker -------High------- Last Down**
**Date Price %**
DDD 01-03-2014 96.42 27.45 71.5
SSYS 01-03-2014 136.46 52.89 61.2
AMAVF 01-24-2014 44.89 18.25 59.3
GPRO 09-30-2014 93.70 41.96 55.2
YELP 03-06-2014 98.04 47.14 51.9
HMSY 03-08-2013 31.05 15.55 49.9
BITA 08-26-2014 96.14 49.93 48.1
KNDI 07-21-2014 21.60 12.27 43.2
YY 09-05-2014 91.42 56.11 38.6
Z 07-28-2014 160.32 100.87 37.1
AWAY 02-20-2014 48.36 30.44 37.1
HFC 03-01-2013 56.95 37.85 33.5
TSLA 09-12-2014 279.20 191.00 31.6
BABA 11-10-2014 119.15 82.28 30.9
SCCO 01-18-2013 41.25 29.18 29.3
GMCR 11-14-2014 154.27 114.13 26.0
DECK 09-26-2014 99.38 74.09 25.4
TRIP 06-27-2014 110.21 82.51 25.1
It’s mostly a waiting game. You pick a large number of potential stocks and then wait to see which drops.
Here are the ones that don’t have a big drop (less than 25%)
**Ticker -------High------- Last Down**
**Date Price %**
CRTO 02-28-2014 53.47 40.99 23.3
AIRM 08-08-2014 59.81 46.32 22.6
ATHM 08-25-2015 56.6 45.03 20.4
BCPC 11-11-2014 68.82 56.28 18.2
CALM 10-10-2014 46.97 38.74 17.5
BIDU 11-12-2014 249.82 208.51 16.5
GILD 10-31-2014 116.83 98.43 15.7
ENB 12-04-2014 57.19 48.23 15.7
ALXN 12-02-2014 200.79 169.94 15.4
PCLN 03-07-2014 1358.04 1160.44 14.6
NFLX 02-26-2015 483.03 414.18 14.3
GOOG 03-06-2014 610.41 535.53 12.3
CELG 03-20-2015 128.50 114.37 11.0
NEOG 02-26-2015 51.63 46.27 10.4
CMG 02-03-2015 726.63 652.39 10.2
CLH 06-27-2014 63.82 57.33 10.2
BKE 01-12-2015 56.07 50.98 9.1
AMZN 01-21-2014 407.05 372.25 8.5
LNKD 02-26-2015 270.76 248.82 8.1
HCSG 03-20-2015 34.54 31.94 7.5
BWLD 03-02-2015 192.53 178.49 7.3
OWW 08-08-2013 12.62 11.73 7.1
XPO 03-20-2015 47.26 44.50 5.8
AAPL 02-24-2015 132.17 125.31 5.2
MIDD 02-20-2015 109.00 104.17 4.4
FB 03-24-2015 85.31 81.56 4.4
GRA 03-07-2014 103.01 98.51 4.4
MDVN 03-20-2015 135.56 130.21 3.9
MNST 03-02-2015 141.23 135.66 3.9
ESRX 02-24-2015 87.62 84.58 3.5
ROST 03-20-2015 107.46 103.92 3.3
^IXIC 03-20-2015 5026.42 4886.94 2.8
AAON 03-31-2015 24.53 23.85 2.8
WAB 02-24-2015 96.77 94.29 2.6
^GSPC 03-02-2015 2117.39 2066.96 2.4
AMBA 03-31-2015 75.71 74.00 2.3
SABR 03-30-2015 24.48 24.13 1.4
NEU 02-20-2015 478.09 471.26 1.4
EXPO 02-18-2015 90.34 89.08 1.4
ORLY 03-31-2015 216.24 215.58 0.3
ASR 04-02-2015 141.11 141.11 0.0
NVO 04-02-2015 54.48 54.48 0.0
SJM 04-02-2015 116.01 116.01 0.0
FDS 04-02-2015 159.99 159.99 0.0
EXPE 04-02-2015 97.98 97.98 0.0
SKX 04-02-2015 73.05 73.05 0.0
Six made new highs on April 2! These are the ones you might buy in small lots at the top. I’ve bought two of them: SABR and XPO. I also like two retailers: BKE and ROST but have no position.
One selection criterium: Buy high volatility stocks on big drops (>25%), low volatility on small drops (5% to 10%). More art than science!
Denny Schlesinger
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Hi Mike,
You are right that odds to win the Masters favor Rory and others. However, Speith has MORE money betting on him than any other golfer in the Masters field, according to Vegas. To me that means that he has more betters that are watching and rooting for this amazing young 21 year old phenomenon.
As you probably remember, last year he was in the final pairing with eventual winner Bubba Watson, pushing him to the end.
As I watch Spieth I am beginning to see the same fiery competitive spirit as Tiger once showed. He will soon win a major. It will also be a major win for UA when he does.
Jim
One selection criterium: Buy high volatility stocks on big drops (>25%), low volatility on small drops (5% to 10%). More art than science!
There are TA indicators (I like weekly RSI) that will put the stock’s movement in the context of its own volatility, which is very useful. Kind of a “road map”.
Thanks for posting the list. I’ve taken a nibble of DDD at 30, and nibbles of PCLN at 1130 and 1025. TSLA and GMCR are on my watch list also, and if I was really itching to have them in my port, I would consider nibbling now. But I’m not, so I’ll wait for what I would consider a lower risk entry, which may come and may not. If it doesn’t, there are other fish in the sea.
UA is hot, hot, hot as a brand.
Karen, you said you were a fan of Jim Cramer in a previous post…
Well, on 4/2/2015 Cramer said UA is heading to…and let me pause for effect here; $100 a share!
