Hey, all you UA fans, explain to me. There was so much enthusiasm for UA that I thought I’d go ahead and research it. I see that their reported earnings the last two quarters combined are 14 cents, and they are selling for $70! They have trailing 12 month earnings of 77 cents, and they are selling for $70! They have a trailing PE of 90! This isn’t a high tech software company. What’s going on? I must be missing something!
For instance, if I want to buy a clothing related company, why not buy SKX? Their earnings for the last two quarters were $1.29 compared to UA’s 14 cents. That $1.29 was up from 35 cents the year before, by the way. Their trailing earnings are $2.10 (up from 65 cents four quarters ago). They are growing much faster than UA. Their price is $52 and their trailing PE is 25!!! Please explain why UA is where I should put my money.
I got a lot of flak from loyal UA investors about how cool UA is, and all the great golfers wear their shirts, etc. Well, in the past year, UA did go up 41% to $99 (which I have to admit, amazed me). SKX, on the other hand, has almost tripled in price to $149. UA now has a PE of 107. SKX has a PE of 34, and a rate of growth of earnings of 107!!!
Which do you think is the best investment?
Saul
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A lesson in, don’t buy what you like, buy what makes rational sense.
What a great stock pick Saul. You’ve been comparing the two on this board for months and always followed the rational, logical reasoning, and shared it with us. SKX has seriously sky-rocketed!
I did sell my UA a few months ago and distributed the funds elsewhere, but not sketchers. I think my mind was still put off by the brand from several years ago when I really did not thing very much of it.
Incidentally, having just seen my friend’s wife’s collection of Sketchers apparel (socks and shoes), I am definitely warming to the brand and can actually see the ‘cool’ appeal. I wonder if they plan to expand their product line?
I humbly admit to being a former UA investor, primarily because of the phenomanal growth in beautiful clothing that has a mass market appeal. However, you showed us all why a sexy company can often be a a trap for investors.
Yes, I made wonderful returns over the past three years in UA. Selling out 6 months ago, however, and investing in much much more REASONABLY VALUED companies like SKX and BOFI and SWKS has proven to yield SIGNIFICANTLY larger returns on investment. Not to mention the built in safety during inevitable and irrational market swoons.
I too have experienced higher returns YTD than my dental practice will give me over the next 3 years! It has been a truly remarkable and humbling learning experience since the beginning of the year.
Completely agree on that but worth making the points that presumably SKX is making a metamorphosis, even if rapid, into the athletic-leisure sector whereas NKE, UA etc. already occupy it, and (qv luxury retailers) more competition leads to lower prices and calamity (COH, KORS).
does that mean the time to enter into SKX is long gone?
I don’t think so. The numbers say otherwise (growth rate, EPS trajectory, company guidance, 1YPEG), and the company’s plans for expansion indicate that there is more runway. I obviously can’t promise another doubling of the stock, but it does seem that SKX is poised to grow faster than UA in the nearer term.
(I currently own both, but am considering selling off my UA portion and putting it into something else, perhaps more SKX even.)
I completely agree that SKX offers better growth and less risk at current prices, but I am curious why you seem to have such a strong bear case against UA?
I think comparing the 2 is similar to comparing AMZN to WMT, or SWKS to the avg chipmaker, or BOFI to JPM/BAC, or TSLA to F/GM, etc.
When you sold out of FB, you posted that “the company may do just fine, but it’s not for me right now” yet with UA it seems you have something against the stock.
I think SKX is a fantastic investment, though the apparel initiative concerns me a bit. I do think the company is a bit of a one trick pony, and I don’t see the “cool factor” of the shoes, but that is part of the reason why I think it is an underappreciated company, the only story it has is earnings so it is uninteresting to most.
UA has fantastic products, more outlets for future revenue with sports contacts, and technical things they are working on, so they are more than an apparel company, and that is what people pay for. Of course that doesn’t fit your strategy, much like AMZN doesn’t for being more interested in investing in future growth than turning a profit in spite of making a ton of cash.
Respectfully, I am curious why you are so against UA? SKX is surely a great pick and you post fantastic information on this board and your record speaks for itself, but I hardly think UA is the next overvalued bubble stock that is soon to crater.
No I did not mean that at all (and I have a holding). I was just making the point that, absent a battlement, high-margin businesses attract competition which lowers margins to the benefit of all (popular capitalism 101). This space used to be inhabited by one serious player in the US and one in Europe. It’s worth noting.
But footwear is a wonderful business, even if the modern manifestation of enthusiasm for quick wear-out shoes made of man-made-fibre has led to the smelliest feet ever, a world-wide pandemic of Athletes Foot and a whole generation who will never know the sheer pleasure of leather (particularly heavy leather shoes, nailed, for hill walking - I digress.
Respectfully, I am curious why you are so against UA?
Hi Mike, I don’t dislike UA at all as a company. They obviously sell great stuff. I’m just appalled that a stock which is growing earnings at 25% per year could have a PE of 107. That’s a gripe against the stock price, not against the company. It’s also dangerous. If you think about it, with just a little bad news they could fall 50% and still be way overpriced with a PE of 53. They just sell clothing after all. I guess to me they are a poster-child for all the stocks that are ridiculously priced based on… I don’t know, glamor? hype?
Hope this helps.
Saul
Thanks Saul, appreciate the reply. They definitely have some glamour & hype premium attached… though they certainly aren’t the worst offender out there in that regard either. But yes, pricey until growth catches up for sure.
Hey Mike, I think you just touched on the key tenet of Saul’s approach. His style is more of a ‘proof is in the pudding’; meaning, I don’t care what you say you’ll do, show me what you’ve done.
If a stock’s growth acceleration is already demonstrated in the past, and the market price has yet to catch up to that proven growth trajectory (by looking a the PE) - then therein lies a great bargain. The stock is under appreciated or under valued based on what it has already demonstrated.
In the case of UA, that higher PE multiple means that future growth is assumed in the current day price. Whereas the lower PE multiple has much lower expectations on the future state of the stock; there aren’t grand assumptions built into its current price.
Think of it this way. For UA to continue to show stock appreciation, it must not only meet current estimates - it has to handily beat them. If it doesn’t, the whole future state of growth built into the pricing model comes crumbling down and the stock along with it.
On the other hand, a stock with lower expectations on future growth (e.g. a lower PE) has only to just barely meet or beat estimates for the stock price to appreciate. And if it doesn’t meet or beat, the whole world isn’t going to come crashing down either because the stock price didn’t have those high expectations anyway. And if the stock does blow the cover off the ball - the potential for even greater price acceleration are there (just like the UAs of the world) but with much less risk.
Hopefully this adds a little more perspective. Its all about risk vs reward. And honestly, I’m learning a lot more about that, too.
Under Armour currently has a net margin of 1.9% as opposed to Nike’s margin of 11%. Under Armour’s Gross Margins are better than Nike’s margins (48.4% vs 46.2%)
Kevin Plank is obviously spending very aggressively to build a global brand. If he decided to ease off the gas he could increase his net income 6 fold, which, for the latest quarter would equate to a p/e of 18.
But he wants to be as big as Nike, which means growing the business 10 fold.
If this pans out we would be looking at a 10 bagger stock at a p/e of 18.
Skechers on the other hand already trades at a net margin of 9%, so it is never going to be able to increase its revenues by 6 fold.
I think the point here is that a company in its early stage of growth can have an earnings number which is drastically unrepresentative of its potential, and thus have a p/e number which is also misleading.
And any comparison based on p/e is likely to be equally misleading.
If this pans out we would be looking at a 10 bagger stock at a p/e of 18.
Key phrase, "If . . . "
I’m not going to assert one way or another. Frankly, I don’t know. But my understanding of a key tenet of Saul’s approach to investing is pay for proof, not a promise.
So maybe UA will be a 10 bagger someday, and maybe the stock price will continue to climb based on that promise, but SKX is paying off today, based on proven past performance and a much safer ratio.
Given the choice of making money based on recent past performance and paying a much more “reasonable” price for each dollar of earnings versus making money at high risk of a detrimental turnaround based on a promising future Saul seems to be content to make money on the lower risk investment that Wall Street has not yet fully recognized.
I’m an older retired guy which means no new money is going into my portfolio. I’ll follow Saul’s approach which several posters here have asserted is way too risky due to his emphasis on growth companies. Apparently, some feel the safe route is staid, blue chips paying a moderate dividend or even bonds (which are not nearly so safe as they might seem) or maybe 30% cash and 30% gold or some such mix.
Hello All,
I am a holder of both. While Saul is great with math which is not my expertise and neither is writing coherent sentences but I am more of a visionary investor that gets excited when I understand a story.
To me the secret to Skechers success is the amount of focus on marketing, which they are really good at. They also are focused on franchising especially overseas.
On the conference call they are very interested in finding Chinese partners. Short term you can grow loads with this strategy. And really increase shareholder value in the now.
Chipotle is having this dilemma with some folks wanting them to franchise instead of own. But they want to own which takes more time but they can be much more profitable overtime.
Under Armour is more like the Apple or Chipotle model they want to own everything and built a great company where they control all the profit. So PE is sky high, but that’s the cost of building it on your own. Sure their will be stumbles but over a ten year period Under Armour is very compelling and so is Skechers.
Skechers does have risk also though. They have much more of a faddish brand with some innovative concepts like Go Walk that I love by the way. But can be imitated by the ‘cooler kids’ longer term and could go out of style. I believe they are suing Steve Madden brand for stealing some of their ideas. At least they can see it coming.
I will be riding both trains for now but have my eye on Skechers to make sure they keep growing faster than Under Armour.
If I understand baggers correctly a 100 bagger is a 1000% increase from your purchase price. If I am correct then there are a whole lot of us old timers with UA 100 baggers.
Saul, I wouldn’t add to UA at these prices but the tax man hovers over me pretty strongly if I sell. I’ve read your feelings on this.
I am a believer in both and the OP post before me express my feelings.
So steady as she goes with both in my portfolio.
Thanks for all you have done for us here And on the WPRT board.
Bruce
Skechers on the other hand already trades at a net margin of 9%, so it is never going to be able to increase its revenues by 6 fold.
Never? Perhaps you meant “at least not by simply easing off the gas”? I can’t see what would preclude simply growing into it. If I have that wrong perhaps you could expand on your statement?
I just wanted to say congratulations on such a great pick. I remember looking at SKX 9 months ago and decided to stay out because I wasn’t convinced the company could maintain its fantastic growth rates. My decision may very well have been different if I had actually known someone who tried the products at the time. I admit I missed the boat on this one and am ok with that because my other positions are also doing quite well. After all we can’t catch them all.
I also agree UA valuation is quite absurd. This coming form someone who used to have a 12% stake in UA due to the great growth it had. I was only barely able to justify the valuation at a PE of 60 to 70 based on accelerating growth rates. Now the growth rates are declining due to its size and I believe EPS will grow slower due to digital/international having lower margins. I could no longer justify the valuation and got out of my entire position between $75 and $85. I obviously left some money on the table. That is perfectly fine with me though because obviously its rare to get out at the exact peak and as you said at today’s unjustifiable valuation it can easily decline 50% and still be a pricey stock. I also for better or worse I refuse to invest into companies that pull a google issuing a stock dividend with 0 voting rights. I just feel this is wrong and don’t want to be a part of it.
