It was a hot summer in 2006 when I discovered a sweat-wicking T-shirt from a young sports performance-apparel specialist, Under Armour (NYSE:UAA)(NYSE:UA). I loved the shirt and bought its stock soon after.
The next 10 years were an incredible time to be an Under Armour shareholder, but the last four years have taken back a significant portion of those gains.
I sold the last of my shares earlier this month. Here's a look back at the storied life Under Armour has had as a public company and three lessons I learned from being a shareholder for most of that time.
The background: It all started with a larger-than-life founder
Kevin Plank knew there had to be a better alternative to the cotton T-shirt that got heavier as he sweat under his college football uniform. In 1996, he created a lightweight sweat-wicking shirt that became the product that launched Under Armour.
The decade of success that followed was well covered by the media, and articles would feature the company's energetic and motivational founder. Under Armour's story and its underdog image mesmerized many, including me.
By the year it went public in 2005, Under Armour had racked up $281 million in annual revenue, lapping the previous year by an amazing 37%. In the next decade, revenue grew at a 30% compound annual growth rate, reaching almost $4 billion by 2015 -- and its stock rocketed up, too.
In the company's investor day presentation that year, Plank promised investors that it could reach $7.5 billion in annual revenues by 2018, and the stock responded by hitting its all-time high. This lofty goal was bolstered by a streak of 21 quarters in a row of 20%-plus revenue growth.
The turning point: Trouble began once growth stalled
The only problem with a streak is that it eventually comes to an end. For Under Armour, its streak ended after 26 quarters when it announced 12% top-line revenue growth in Q4 2016, well short of expectations. Since then, it hasn't posted double-digit revenue gains, even putting up year-over-year revenue declines for Q3 2017 and Q3 2019.
When the streak ended, the stock tanked, the company struggled, and growth investors moved on. But for me, I held on to many of my shares. I was enamored with the story, the founder's underdog appeal, and his passion. Every earnings call, Plank would highlight the wins, often admit the company could do better, and always seemed to paint a more positive future for investors. But the results never materialized.
So what happened? Quite simply, its design process wasn't producing products that people craved, and it took a long time for management to figure that out. Outside factors including a resurgent Adidas in the U.S. and sportswear retail store closures may have distracted senior leadership from the real issues which were internal.
Plank eventually realized he needed help and hired industry veteran Patrik Frisk as President and Chief Operating Officer in June 2017 to help orchestrate a transformation.
The current situation: It's a turnaround that's still in progress
Frisk was a breath of fresh air for shareholders. In his first earnings call, he offered a stark assessment of the state of the business. "Our success must start and end with making great product that delights consumers..." He went on to say the company has been "inconsistent" on delivering that promise and that it had started a transformation to "better serve our consumers."
Over the next 1 1/2 years, Frisk worked with Plank to create a new vision and mission, improve the go-to-market approach, and reorganize the business to deliver more consistently. During this time, it continued to post mediocre growth and didn't share a specific timeline for when investors would see improvements. Finally, in December 2018, the management team shared its long-term plan and committed to getting back to double-digit top-line growth rates, but not until 2023.
The three lessons for investors
The stock has dropped more than 70% from its all-time high four years ago, and many shareholders are wishing they had sold earlier. These lessons are not about trying to time an exit at the peak, but I missed many of the signs along the way that would have allowed me to exit my position more profitably. Here's what I learned.
First, a story doesn't drive long-term stock growth -- but results do. I let Plank's enthusiasm keep me from selling, even though the company was posting poor results.
Second, consider selling when your thesis is broken. When the growth that attracted me to the investment evaporated, I should have evaluated my position more critically.
Third, turnarounds may take more time than you're willing to give. I further gave management the benefit of the doubt when Frisk joined. I should have recognized the time required for a turnaround would be extensive, especially due to the company's long product-development cycle.
Under Armour may yet get back on its feet, but it's a very different company from the one I bought almost 14 years ago. With the depth of the issues the company still faces, I'm happy to have moved on.