UA CEO Kevin Plank: Why The Stock Sell-Off?

Under Armour
Under Armour

The weather report out of Baltimore today has winds gusting at 25 miles per hour and I think some of what's blowing could be the sighs coming out of the Under Armour offices.

It took the mid-morning Morgan Stanley downgrade to get it there, but it looks like UA shares could close below $50 for the first time in four months. I haven't seen the report, but it's not the downgrade alone that's a problem.

Trust me, some of it has to do with the market buzzing about the news that the company's CEO Kevin Plank sold 1.5 million shares (10.7 percent of his total holdings in the sports apparel company) just two days after earnings (Oct. 30) that the market wasn't too thrilled with. (The company released this information after the bell yesterday).

Although Under Armour is traditionally seen as one of those hot stocks, so was Crocs . And UA also has a lot of people waiting for it to fail. So given the amount of people that shorted this stock, the "walking of the Plank" was what they were rooting for. The key moment, the proof, they'll say, that the company founder is starting to "not believe," proof that he's starting to "cash out."

This is their chance to start the whisper campaign throughout the street: the "CEO sells, something smells" argument.

And they are not completely without merit. The truth is that it's not the greatest time in the world for Plank to sell. Despite what I would call good numbers in earnings and confidence by Plank on the conference call (and in a great interview with us that day at their new store in Annapolis), the fact that Plank did in fact sell stock two days later leaves some doubt to that confidence. Did he mean what he said?

No matter how much you say the company can grow and grow, and it's worth more than it's worth now, it's hard to deny that taking the cash at $59 a share is anything more than that taking the cash at $59 a share.

On the other hand, Plank owns a tremendous amount of stock (14 million shares before the sale), so any sale could seem like a large one and could be made into a red flag by someone shorting the stock. If I told you that Kevin Plank sold $76.7 million worth of Under Armour stock last week (which was the actual value by the way), you might be concerned. But if I told you that he still had $642 million worth of stock in his holdings (the actual value as of Monday's close) that might change your opinion of just how much faith he had in the company's future.

The market is about messages as much as it is about numbers. Under Armour had relatively good numbers last quarter but the street wasn't as happy with the message. It needed something good going forward. A good anecdote from Under Armour. A frigid two weeks of weather to sell that ColdGear. Maybe not a small CEO selloff.

Questions? Comments?