Piper Jaffray just released the results of its Fall 2017 Taking Stock With Teens survey, and the numbers were anything but good for Under Armour Inc (NYSE:UAA). The dour results underscore a core tenet of the bear thesis: Under Armour is no longer relevant.
This means UAA stock is no longer relevant. But it continues to trade at a hyper-rich valuation that implies expectations for some combination of robust revenue growth and healthy margin expansion.
Neither of those will come to fruition.
Instead, UAA will be lucky to see double-digit revenue growth again while margins should remain under pressure. The net takeaway is that UAA stock is due for more pain in the foreseeable future.
Under Armour Isn’t Cool With Teens
Going through Piper Jaffray’s recent Taking Stock With Teens survey, it’s tough to find any silver lining for Under Armour.
Firstly, although athletic apparel is still hot, its dominance in the retail world is slipping. The survey results indicate that there is a sizable shift in teen preference toward streetwear brands like Vans and Supreme. Although most signs point to the athleisure trend continuing to remain in favor, it is worth noting that UAA could soon face a macro-demand headwind given its lack of diversity into streetwear and casual styles.
Secondly, within athletic retail, Under Armour is losing big. Nike Inc (NYSE:NKE) is the number one brand, while adidas AG (ADR) (OTCMKTS:ADDYY) is the fastest growing brand. But where is UAA?
At the top of the “old brands” pile. Yet again, when teen males were asked to identify old brands that they no longer wear, they put Under Armour at the top of the list. Overall, Under Armour was the 11th-ranked preferred apparel brand among upper-income male teens versus 8th one year ago. Among average-income teens, Under Armour slipped from the 6th-place spot a year ago to the 9th-place spot today.
Meanwhile, on the female side of things, only one upper-income female labeled Under Armour as the preferred apparel brand. That is shocking, especially considering the survey had 6,100 respondents.
The negative Piper Jaffray survey results corroborate bearish teen sentiment data from Wells Fargo. A survey conducted by Wells Fargo earlier this year found that teen perceptions of the Under Armour and Curry brands were exceptionally low. In fact, in that survey, a third of the respondents said they were less likely to buy Under Armour shoes going forward.
Under Armour’s Biggest Tailwind May Get Muted By Competition
Granted, Under Armour does have a speculative, long-term tailwind in its digital health business.
Powered by three strategic acquisitions over the past several years, UAA has built a large digital health and fitness community. Under Armour should be able to one day leverage the data produced by this digital community to optimize the retail sales process (i.e. put the right product in front of the right consumer at the right time). That should ultimately lead to more sales conversions.
This tailwind hasn’t really kicked in yet, and its a wild card as to when UAA will have enough data to start realizing revenue benefits. Plus, this tailwind could potentially be muted by growing competition from Amazon.com, Inc. (NASDAQ:AMZN), which is planning on launching its own athletic apparel line.
Bottom Line on UAA Stock
Under Armour isn’t relevant anymore. Meanwhile, Under Armour’s big digital health tailwind looks like it might be largely offset by growing competition from Amazon.
What does that mean for UAA stock?
It’s certainly not a buy here, trading at 37 times next year’s earnings estimate. Investors should move on from this name and look for better retail exposure elsewhere.
As of this writing, Luke Lango was long NKE and AMZN.
