Analysts are always issuing notes and making predictions, but how concerned should investors really be about the critical report a major financial services company recently issued regarding Under Armour ?
In this clip, Sean O'Reilly and Vincent Shen examine the Morgan Stanley downgrade and Under Armour investors' subsequent bearishness in the context of the company's performance over the past few years. They also discuss where the sports apparel maker is putting its advertising dollars and what investors might want to watch for going forward.
Listen to the full podcast by clicking here . A full transcript follows the video.
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This podcast was recorded on Jan. 12, 2016.
Sean O'Reilly: So, I've got to be honest with you. I see analyst notes come out all the time for stocks. Sometimes they move, sometimes they don't. Do you agree with the stuff? Like, how serious is this?
Vincent Shen: OK, yeah. I think it's important to mention for the listeners, too: Based off of that report being the main driver, the stock traded down 6.7% yesterday.
O'Reilly: So the market's clearly taking this seriously.
Shen: Exactly. And it's brought the stock's current year-to-date decline to about 13.2%, I think?
O'Reilly: This hasn't been the best year for the stock market so far, so we'll give them ... (laughs)
Shen: (Laughs) We're only twelve days in. I know it's early. But just to give you an idea. Another thing is, this is part of an ongoing trend, where shares have already fallen about 30% from their highs from September-October 2015. So keep that in mind. Also, the Morgan Stanley analysts drew from the SportScan data, that has shown that obviously, a lot of that growth that exceeded men's apparel has flattened out.
But also the management itself, or the CEO, Kevin Plank, has also mentioned that, "That is a really huge opportunity for us." He's mentioned how the company wants to change their in-store experience. He had a quote from another investor call where he basically said, "Our in-store experience for women who are shopping is not where it should be right now. It's not designed in a way to appeal to them as much as our male shoppers." And that's something that they are focused on.
So when you have management that's obviously spending money on marketing and spending money on the in-store experience to cater more to women shoppers, but the results come out with the growth basically nosediving down from previous levels ... I think that's a big part of the concern that drove that bearish trading yesterday.
O'Reilly: I had a crazy thought. It almost seems like Under Armour should buy Lululemon or something.
Shen: It's an idea.
O'Reilly: Could be a cool move. I don't know.
Shen: They're often cited as an example, like a proxy of the opportunity that's there. Obviously they appeal far more to ... They also cater more so to female shoppers. And they've shown that that premium model can work. Not that they haven't had their own challenges.
O'Reilly: Well, and they're trying to build up their men's business. Have you been in a Lululemon store lately?
O'Reilly: It's like they're trying to sell me $80 shirts.
Shen: They're flipped, exactly. So it's almost like they're on opposite sides of that issue. But combining that with the footwear, which right now ... that falling average selling price, I think, had specifically [to do] with their running shoes. But if that spreads to, for example, their basketball sneakers, where they've also, again, been spending tons of money on some of these endorsement deals with big athletes, what impact is that going to have on that longer-term growth?
The article What's Worrying Under Armour Inc Investors? originally appeared on Fool.com.
Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends LULU and UA. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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