Is Under Armour a buy at (21.50)?

Under Armor missed their revenue target after 26 consecutive quarters of at least 20% revenue growth.

Since trading above $52.50 in 2015, their shares have fallen 60%, now trading under $22.00.

This article from spring of last year sums up the "athletic wear" market pretty well.

For me, I think this stock needs some time to settle down.

The article speaks about saturation in the athletic wear market. At first Nike , Under Armour , and few others dominated the space. Soon though, other brands entered and stores started to private label their own lines. Prices have came down.

So, is this just a cycle that needs some time weed out the weak hands? Probably.

Most of the fundamental news I read is negative on this stock and clothing in general. Contrarian play? Maybe

This company is currently worth 8.7 billion. Is that a reasonable valuation based on what we know? Possibly.

Here is my thinking:
Warren Buffet in his 1991 annual letterspoke about the d/f between an "economic franchise" and a "business".

He stated and economic franchise arises from a product or service that (1) is needed or desired; (2) is thought by it's customers to have no close substitutes; (3) is not subject to price regulation.

In contrast a "business" earns exceptional profits only if it is the low cost operator or if supply of its product or service is tight. He noted the later usually does not last and being the low cost operator can work if superior management is at the helm.

So when we apply the "economic franchise" test to Under Armour what do we get using reasonable assumptions.

(1) I believe their product is needed and desired.
(2) I think some customers are loyal, but at scale I am not sure if that is true?
(3) They cannot price their product aggressively. See the linked article. Competition has forced prices lower.

To wrap up: I believe they have a strong enough brand that their products will be needed and desired in the future. Unlike some companies that entered the "athleisure" category, I believe it is likely they will survive a washout, if one comes.

Is 8.7 billion a fair price to pay? This where investing is so fun. There is a range of outcomes over the long term, from going to zero(0% probability IMO ) to being worth 100 billion(very low probability IMO ) and a range of everything in between.

I just ask this, is it a reasonable probability that this company will be worth more than 8.7 billion in 3,5, or 10 years. Yes, I think that is reasonable. Do you?

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