Which Under Armor Share to Own? (UA Vs. UAA)
Beyond knowing the difference between each class of Under Armor shares we believe it’s important to know the history of them and the fundamental value of one class of shares over the other.
We’ll start off with a brief explanation on the difference, before diving into the numbers and fundamentals of each class of shares and which class is currently the better buy.
What's the Difference between UA and UAA?
The only real difference is that UA is their class C shares which do not have voting rights while UAA is their Class A shares that do not have any voting power. That’s about all they inherently have different to them as they both would be paid dividends equally and be in the same position in bankruptcy.
The only other difference than UA shares having voting rights while UAA doesn’t would be it’s share price — because UA has voting rights it’s generally quite a bit higher than UAA, as there’s no downside to owning a share with voting rights compared to one without. Due to this UA shares trade at a premium to UAA shares. We’ll go deep into the numbers below in our section about which share we’d say most people should own.
Does Voting Rights Actually Matter?
This is something definitely up for debate — as votes in a company can determine the outcome of important decisions from board elections or certain plans forward for the company — however due to Under Armor’s CEO Kevin Plank owning a third class of share (Class B) that isn’t traded, ultimately he has 65% of all voting power and can personally choose anything he wants at any time without any checks and balances.
Due to that grim reality we’d say while voting rights do matter and deserve a small premium in many companies, they don’t at all in Under Armor as they provide no material benefit to the shareholder (or an activist investor) since Kevin Plank can simply vote in the opposite direction of all other shareholders and override their choices, and there’d be no recourse for shareholders.
So Which Under Armor Share Should You Own?
Well if we were going to buy Under Armor we’d generally opt for the non-voting rights shares at this moment due to UAA’s (voting shares) high premium compared to their non-voting UA shares. Currently that premium, at the time of writing this, is around 11%. Personally we aren’t interested in owning Under Armors stock, however if we were we’d go with the class C shares under ticker UA.
To put that into perspective Google, which has a similar voting structure, has a premium for their Class A (Voting Shares) of just 0.03% at the time we’re writing this.
So why does UAA shares command such a premium if their voting value effectively doesn’t matter? This is because repurchases of Under Armor stock by the company tend to favor voting-class A (UAA) shares due to Kevin Plank (the CEO) being mandated to hold at least 15% of Class A shares as to not forfeit his Class B (non-trading vote-dominant) shares. As a result repurchases seem to favor Class A shares.
Furthermore, generally bonuses to employees/board-members and purchases of other companies (M&A) with stock are given essentially exclusively with class C (non-voting shares) which make any sale by other executives or people who were acquired by Under Armor for share equity bring down the share price of non-voting UA stock, thus further pushing it’s price down compared to UAA.
It’s our belief that the non-voting class C shares (UA) are a better investment due to the Class A shares (UAA) as there is no fundamental benefit in owning Class A shares over class B shares due to voting rights being effectively useless and both UA and UAA offering equal ownership in Under Armor as a company.