Under Armour Porter's Five Forces
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Under Armour Porter's Five Forces

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Taking a look at Stock Advisor Starter Stock Under Armour through the lens of Porter's Five Forces.

Taking a look at Stock Advisor Starter Stock Under Armour through the lens of Porter's Five Forces.

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Under Armour Porter's Five Forces Under Armour Porter's Five Forces Presentation Transcript

  • Under Armour NYSE: UA Porter’s Five Forces 1
  •  Porter’s Five Forces is a model named after Michael E. Porter that takes into consideration five market forces that play out on any given company or industry. The five forces are: power of buyers; power of suppliers; threat of substitutes; threat of new entrants; and industry jockeying.  This model examines these forces thereby helping to determine a given company’s strengths and weaknesses.  Porter’s Five Forces is also a way to view the potential risks to which any given company may be exposed.  Porter’s is a valuable yet somewhat subjective tool. It is a starting point meant to encourage further discussion. 2 What is Porter’s Five Forces?
  •  Please note there is no official method to score the model. This method is simply a way to further categorize companies.  Each market force is scored on a scale of 1 – 5 with 1 representing the lowest threat and 5 representing the highest threat.  All five forces are totaled for a final score. The lowest possible score is 5 and the highest possible score is 25. implies a lower threat rating. implies a medium threat rating. implies a higher threat rating. 3 Scoring
  • Power of Buyers  The buyers in the case of UA are consumers like you and me.  Professional athletes are advertising. They get the gear out there for us to see.  Athletic gear/apparel/footwear is a $200 billion-plus market opportunity.  It’s a mistake to underestimate brand power. Look at what Nike has built over the past 50 years.  Consumers will often pay for what they really want.  UA’s expanding gross margin over time helps to substantiate this.  Score - 3 4
  • Power of Suppliers  Suppliers are those that supply the materials and produce the goods UA sells.  Per the company’s 10-K: “In 2013, approximately 50% to 55% of the fabric used in our products came from six suppliers.”  “[I]n 2013, fourteen manufacturers produced approximately 65% of our products.”  Approximately 66% of UA products are manufactured in Asia.  UA appears to be well-diversified, however exposure to emerging economies will quite possibly result in higher costs of production via wages, etc. down the line.  Score - 2 5
  • Threat of Substitutes  One of the greatest threats in virtually every walk of retail is the threat of substitutes.  Generally speaking there are plenty of substitutes in athletic apparel/equipment.  Materials and products exclusive to the brand help to mitigate this threat.  Moisture wicking products, Storm Fleece, ColdGear Infrared, these are types of products that will continue to separate UA from its competition.  Competition will continue to keep pace for the most part so innovation will be key.  Score - 4 6
  • Threat of New Entrants  I’m sure back in 1996 when UA was just getting started in Kevin Plank’s grandmother’s basement that Nike management more or less dismissed it as a concern.  The UA story is a unique one and certainly very levered to the phenomenal leadership of Kevin Plank.  Barriers to entry are tame in comparison to energy or tech for example. No real regulatory concerns either.  What happens if Plank leaves? Leadership is crucial to the UA story.  Score - 4 7
  • Industry Jockeying  How competitive is this industry in general?  Signs of an active and competitive industry can be seen in innovation, SG&A costs, social media presence, etc.  Nike and UA maintain similar levels of R&D and SG&A as a percentage of revenue.  Constantly signing new athletes and endorsements. For a while Nike was the big name in the space, however UA has made a name for itself in a short amount of time.  Given the global nature of sports and their popularity, this industry should remain very competitive for the foreseeable future.  Score - 5 8
  •  Power of Buyers – 3  Power of Suppliers – 2  Threat of Substitutes – 4  Threat of New Entrants – 4  Industry Jockeying – 5 9 Score