Initial Thoughts on UnderArmour: Why it’s On The Radar

Jim Cramer, the hug-able, love-able, and smart CNBC Mad Money says: “UnderArmour is a technology company.”

Whether true or not, the stock has certainly behaved like a high growth tech company…and has been valued like one too. LST is not sure if it is a tech company or not, but may initiate a starter short position in the near future for the following reasons:

  • Recent divergence in paper earnings vs. cash flow trends.
  • Insider selling.
  • Dick’s Sporting Goods UK JJB Sports writeoff makes it tougher for UA to grow there.
  • A few minor accounting red flags that may signal bigger problems.
  • Executive resignations over the last 2 quarters.
  • Consumer companies hyped as tech companies offer  “fad” play.

OPEN QUESTIONS

  • Is UA a “technology company” ? To what extent yes, and no?
  • What are its core products and why are they so appealing? Do competitors currently offer compelling alternatives?
  • Is there buyout potential at these levels? Why buy when you can build (build vs buy) for a fraction of the cost? Why pay ~$6 billion, when you can build spending, say $600 million over a 5-10 year horizon?
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