I have a great deal of respect for Tim, but his reasoning in defense of Under Armour
The main argument is that companies with significant insider ownership, still under founding leadership, will do better than other stocks, and that Under Armour is one of those. But while inside ownership makes management more attuned to shareholder concerns, excessive executive holdings can lead to the opposite. We've all heard stories about fat-cat executives lining their own pockets at the expense of the common stock owner, with outsiders powerless to intervene thanks to the CEO's massive voting power.
What's more, owning a large portion of the company you started does not impart magical powers of leadership or business acumen. Take, for example, PC Connection
Well, how about slicing off a sliver of the $6 billion shoe market? I can assure you that it will be a razor-thin shard, at best. As I mentioned, Nike
And sometimes, there's a good reason why investors are skeptical toward a stock, Tim. Not every share with heavy short-selling action can blame shadowy Sith Lords -- Under Armour is simply too richly valued for its marginal prospects. I'll call in closer Buck Hartzell (TMFBuck) for my final remarks from the wild reaches of Motley Fool CAPS:
A lofty $2 billion valuation. No real free cash flow to speak of, an ultra-competitive marketplace. This is all built on the idea of tight-fit athletic clothes. UA is a neat company that has done a great job so far. I just don't see a sustainable moat around the business. A LOT has to go right for this one to grow into this valuation.
That's exactly right, and chances are that something -- or everything -- will go wrong along the way. Click. Clack. Case closed.
Further dueling goodness:
- Read the bull argument
- Read the bear argument
- Read the bullish rebuttal
- Sound off on Under Armour in Motley Fool CAPS
- Vote for the winner
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Fool contributor Anders Bylund holds no position in any of the companies discussed here, and he prefers Reebok shirts and shoes. You can check out Anders' holdings if you like, and Foolish disclosure is a skin-tight fashion frenzy.