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When one of the world's most respected value investors drops $129 million on a struggling company in three weeks, you need to understand what's happening. |
V. Prem Watsa just made that bet on Under Armour. |
And $UA ( ▲ 0.98% ) jumped 14% in response. |
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Who Is Prem Watsa? |
 | Prem Watsa, Fairfax Founder (Canadian Press) |
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Watsa runs Fairfax Financial Holdings, a Canadian investment firm with a track record that earned him the nickname "Canada's Warren Buffett." |
His strategy is simple. Find good companies trading way below their value. Buy massive positions. Wait for the market to wake up. |
He's done this before. And he's made billions doing it. |
So when Watsa personally directs over $129 million into $UA in less than a month, smart investors take notice. |
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The Numbers Are Staggering |
Here's what happened: |
January 21: Bought 5 million shares for $29.5 million January 20: Bought 1.8 million shares for $9.9 million January 16: Bought 1.8 million shares for $10.3 million January 2: Bought 13.2 million shares for $67.5 million December purchases: Another 12+ million shares
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Total investment: Over $129 million |
Total shares acquired: More than 24 million |
Average price paid: Around $5.31 per share |
Current stock price: $6.21 |
That means Watsa is already sitting on paper gains. But here's the thing: he's not buying for a quick flip. |
| | | | Is this "smart money"… or a trap? | |
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Under Armour's Business Model |
Before you understand why Watsa is buying, you need to know what Under Armour actually does. |
The company designs, manufactures, and sells athletic apparel, footwear, and accessories. Think performance gear for athletes and fitness enthusiasts. |
Revenue comes from four main channels: |
Wholesale: Selling to retailers like Dick's Sporting Goods and Academy Sports. This is still the biggest chunk of sales. |
Direct-to-consumer: Their own stores and e-commerce site. Higher margins but requires significant marketing investment. |
Licensing: Letting other companies make UA-branded products for a royalty fee. |
International: Sales outside North America, particularly in Asia and Europe. |
The business model depends on brand strength. When athletes and everyday people want to wear your logo, you can charge premium prices. When they don't, you're stuck competing on price. |
That's exactly where Under Armour has been struggling. |
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Key Financial Metrics |
Let's look at what the numbers actually say about Under Armour's current health: |
Revenue (TTM): $5.05 billion
Net Income: -$87.7 million (loss)
Operating Margin: 1.9%
Gross Margin: 47.3%
Current Ratio: 2.1
Debt-to-Equity: 0.58 |
Here's what this tells us: |
The company still generates over $5 billion in sales. That's not small. But profitability is the problem. |
Gross margins of 47% are actually decent for apparel. The issue is operating expenses eating up everything. Marketing costs, store operations, and restructuring charges are crushing the bottom line. |
The current ratio of 2.1 is healthy. Under Armour has enough short-term assets to cover short-term debts. They're not facing a liquidity crisis. |
Debt levels are manageable at 0.58. For context, Nike's debt-to-equity is around 0.70. Under Armour isn't over-leveraged. |
So why is the stock so cheap? Because investors don't believe the turnaround story yet. They see declining revenue, weak margins, and no clear path back to consistent profitability. |
Watsa sees something different. |
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Under Armour vs Nike: A Tale of Two Brands |
To understand Under Armour's potential, you need to compare it to the market leader. |
Here's how Under Armour stacks up against Nike: |
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What jumps out? |
Under Armour generates 11% of Nike's revenue but trades at less than 3% of Nike's market value. |
Gross margins are actually comparable. Under Armour's 47.3% beats Nike's 44.8%. The product economics work. |
The problem is operating margin. Nike runs a 12.1% operating margin. Under Armour barely scratches 2%. That's where the entire valuation gap lives. |
If Under Armour could improve operating margins from 2% to just 8-10%, the stock would re-rate significantly. You wouldn't see a $2.6 billion market cap on $5 billion in revenue with healthy profitability. |
That's the bet Watsa is making. He's not betting on revenue growth. He's betting on margin improvement through better cost management. |
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What Does Watsa See That Others Don't? |
Under Armour is struggling. No question about it. |
The company lost $19 million last quarter. Revenue dropped 5% year-over-year. Margins are shrinking. Competition from Nike and Lululemon is brutal. |
So why is Watsa buying? |
Because the stock is priced for disaster, not difficulty. |
Under Armour has a market cap of just $2.6 billion. That's tiny for a brand everyone knows. |
The company still generates over $5 billion in annual revenue. It has loyal customers, quality products, and global distribution. |
But the market has given up on it. |
Watsa hasn't. |
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The Turnaround Story |
Under Armour isn't sitting still. |
Management expanded its restructuring plan in November and raised the operating income outlook to $95 million to $110 million for fiscal 2026. |
CEO Kevin Plank, who founded the company and returned to lead it, calls 2026 a "reset year." The plan is to stabilize operations, cut costs, improve margins, and set up for growth in 2027. |
Will it work? Nobody knows for sure. |
But Watsa clearly thinks the odds are in his favor at these prices. |
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What About the Risks? |
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Let's be honest. This is not a safe stock. |
Under Armour is still losing money. Sales are declining. The brand has lost some of its cool factor to competitors. |
Turnarounds take time. And they don't always work. |
If you buy Under Armour today, you're betting on execution. You're betting that management can cut costs, stabilize revenue, and eventually return to profitability. |
That's a bet with real downside risk. |
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The Potential Upside Is Massive |
But here's what makes this interesting. |
If Under Armour gets back to where it was in 2021-2022, the math changes completely. |
Back then, the company had revenue around $5.8-6 billion with operating margins of 12-14%. The market valued it at $8-12 billion. |
Today, it's worth $2.6 billion. |
If the turnaround works, if revenue stabilizes and margins improve, $UA could easily triple or quadruple from current levels. |
That's the bet Watsa is making. |
And when you look at the valuation gap vs Nike, it's not crazy. Under Armour doesn't need to beat Nike. It just needs to run a profitable business with decent margins. |
At 8-10% operating margins on $5 billion revenue, you're looking at $400-500 million in operating income. Put a 15-20x multiple on that, and you get a $6-10 billion market cap. |
From $2.6 billion today, that's 2-4x upside. |
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What Should Investors Do? |
Under Armour is not for everyone. |
If you need stable cash flow, dividends, or predictable earnings, look elsewhere. |
But if you have a long time horizon, can stomach volatility, and want exposure to a potential turnaround backed by one of the best value investors in the world, this deserves serious consideration. |
The signal from Watsa's buying is clear: he sees value where others see only problems. |
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Key Takeaways |
Legendary investor Prem Watsa invested $129M+ in Under Armour over three weeks His average purchase price around $5.31 suggests he sees major upside from current $6.21 Under Armour generates $5B revenue but trades at only $2.6B market cap Gross margins (47.3%) are healthy but operating margins (1.9%) need improvement Nike comparison shows massive valuation gap even accounting for performance differences High risk, high reward: not suitable for conservative investors If turnaround works and margins improve to 8-10%, stock could triple or quadruple
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The Bottom Line |
When a billionaire investor with Watsa's track record puts this much money into a beaten-down stock, you can't ignore it. |
Under Armour is risky. It's volatile. |
But at $6.21 per share with gross margins that work and a brand people still recognize, it might be one of the most undervalued names in athletic apparel. |
The math is simple. Improve operating margins from 2% to 8-10%. That's it. You don't need explosive revenue growth. You don't need to beat Nike. You just need to run a profitable business. |
For patient investors who believe in the turnaround story and trust Watsa's judgment, the current price could be a gift. |
For everyone else, it's a reminder: sometimes the best opportunities come when everyone else has given up. |
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P.S. Personally, I'm putting 5% of my portfolio into Under Armour — because moves like this don't happen often, and if this turnaround story is real, I don't want to be watching from the sidelines. |
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Disclaimer: This analysis is for educational purposes only and should not be considered investment advice. Always do your own research before making investment decisions. |
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