In professional sports, when a teammate throws shade at your athletic apparel brand, you feel compelled to respond.
A few weeks back, Golden State Warriors superstar forward Kevin Durant said on a well-followed sports podcast that nobody in the basketball world wants to play in Under Armour Inc (NYSE:UAA) shoes. According to Durant:
“Nobody wants to play in Under Armours, I’m sorry. Like, the top kids don’t because they all play Nike.”
For those who follow UAA stock, that comment deserves much more than just a footnote for many reasons.
One, NBA players know better than anyone else what basketball shoes are selling and which are not. Two, Durant’s teammate Stephen Curry is the face of the Under Amour basketball brand. Three, the big growth driver in UAA’s footwear business is basketball, and footwear is a sizable chunk of revenues (23% so far in 2017). Four, UAA stock is dying because a lot of investors think Durant is right.
Curry has responded to Durant, who is a Nike Inc (NYSE:NKE) guy. The NBA star told the Charlotte Observer that Durant’s statement “does not ring true at all.” As far as kids not wanting to wear Under Armour shoes? Curry says that he knows “for a fact that they do.”
So who is right? The answer could tell you whether to buy or sell UAA stock. After all, this is a stock which rode on the coattails of Curry’s success to all-time highs in 2015 and has since collapsed as the Curry-mania has subdued.
The Data Supports Durant
Unfortunately for UAA shareholders, it looks like Durant is right.
Just look at search interest related to Under Armour. The trend is pretty ugly. Search interest surged 22% higher in 2015. That growth slowed to 15% last year. Year-to-date in 2017? Search interest is actually down year-over-year. That means that despite UAA stock being hyped as a growth story, the level of interest in the Under Armour brand is actually down versus last year.
The trend is even worse for Under Armour basketball.
Search interest rocketed about 60% higher in 2015 as Steph Curry jumped into the NBA spotlight. But then LeBron James and the Cleveland Cavaliers staged a storybook comeback in the 2016 NBA Finals. That took the wind out of the Steph Curry-led UAA growth story. Search interest related to Under Armour basketball grew only 7% in 2016.
Durant came to town and the Golden State Warriors won the 2017 NBA Championship. That fixed the Warriors dynasty. But it didn’t do much to mend the Curry and Under Armour brands.
Why? The 2017 Warriors championship season wasn’t about Curry or Under Armour leading the Warriors back to world champion status. It was about Curry and Under Armour needing Durant and Nike to become champions again.
And that is exactly why Under Armour basketball search interest is down a whopping 25% so far in 2017.
That’s a big, big decline. It makes you wonder just how right Durant is. Is it actually “nobody” that wants to play in Under Armour shoes?
Well, run a Google image search on the top high school basketball players, according to ESPN. Top recruit Marvin Bagley, III is clearly a Nike guy. Number 2 recruit Michael Porter Jr. also looks like a Nike guy. The number 3 recruit, DeAndre Ayton, looks like he may have once been an Under Armour guy, but he played for a high school that was outfitted by Nike and is going to a college that is outfitted by Nike.
In fact, of the top 10 basketball recruits this year according to ESPN, all 10 are going to schools outfitted by Nike.
Bottom Line on UAA Stock
There are certainly a huge number of people out there who still love Under Armour basketball offerings. Curry shoes are still popular. Curry is still a winner, and Under Armour basketball is still much bigger than it was four years ago.
But all those calls in 2015 for Under Armour to be the next Nike now seem silly. Under Armour is on the decline, and will be until the brand lands another superstar to reinvigorate growth.
It doesn’t look like that superstar will come anytime soon. All the top high school players are going to Nike schools. Meanwhile, Nike dominated endorsement deals among the 2017 NBA Draft class. Adidas AG (ADR) (OTCMKTS:ADDYY) was the draft class winner last year.
Under Armour? Not much to mention. But UAA stock still trades at roughly 40-times next year’s earnings estimates for earnings that are expected to be flat over the next two years.
This isn’t a contrarian buy. It’s an overvalued stock that still has a ways to fall before it’s appropriately valued.
As of this writing, Luke Lango was long NKE.
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