Under Armour shares surged more than 8% on Thursday after filings revealed that Fairfax Financial Holdings, the Canadian conglomerate led by billionaire Prem Watsa, significantly increased its stake in the struggling sportswear company to approximately 16%. The move represents one of the largest votes of confidence in Under Armour's turnaround efforts since founder Kevin Plank returned as CEO.

The $71 Million Vote of Confidence

SEC filings show that Fairfax acquired nearly $71 million worth of Under Armour shares over five trading days, spanning both the company's Class A and Class C share classes. The aggressive accumulation drove an immediate market reaction, with Under Armour's Class A shares (UAA) closing at $5.14, up about 7.5%, while Class C shares (UA) ended at $4.93, representing gains of approximately 8.6%.

Prem Watsa, often called the "Warren Buffett of Canada," is listed on the Form 4 filing as both a director and 10% owner, signaling deep involvement in the company's strategic direction. His investment style—focusing on undervalued companies with strong brands and turnaround potential—has historically generated substantial returns for Fairfax shareholders.

The Turnaround Story

Under Armour has been in the midst of a significant reset since Kevin Plank, the company's founder, returned to the CEO role to lead the turnaround effort. The company has faced intense competition from Nike and Adidas, changing consumer preferences, and operational challenges that have pressured both revenue and margins.

"UBS sees improving EPS and sales growth boosting the stock's valuation. Under Armour has potential to leverage its brand name more effectively."

— Jay Sole, UBS Analyst

UBS recently raised its price target for Under Armour to $8.00 from $7.50 while maintaining a Buy rating. The target suggests more than 50% upside from current levels, reflecting analyst optimism about the brand's recovery trajectory.

Options Activity Signals Bullish Sentiment

Beyond Fairfax's direct share purchases, the options market showed increased bullish activity. Traders acquired 9,871 call options on Under Armour stock, representing an increase of approximately 105% compared to the average daily volume of 4,807 call options. This surge in call buying typically indicates expectations of further price appreciation.

The heightened options activity, combined with institutional buying, suggests that sophisticated investors are positioning for continued gains in the stock.

Index Inclusion Boost

Under Armour's recent inclusion in the S&P 600 index has added another tailwind to the stock's momentum. Index inclusion typically triggers passive buying from funds that track the benchmark, while also increasing the stock's visibility among institutional investors.

The combination of index-related flows and active accumulation by value-oriented investors like Fairfax creates a potentially powerful dynamic for share price appreciation.

What Watsa Sees in Under Armour

Watsa's investment philosophy centers on identifying companies trading below intrinsic value with catalysts for improvement. For Under Armour, several factors likely attracted his attention:

  • Brand strength: Under Armour remains a globally recognized athletic brand with significant untapped potential
  • Valuation: The stock trades at a fraction of its 2015 highs, pricing in substantial pessimism
  • Management change: Founder-led turnarounds often succeed when the original visionary returns
  • Operating leverage: Cost-cutting and efficiency improvements could drive outsized profit growth as revenue stabilizes

Risks Remain

Despite the bullish signals, Under Armour faces significant challenges. The sportswear market remains fiercely competitive, and consumer preferences continue to evolve rapidly. The company must also navigate inventory management, wholesale relationships, and direct-to-consumer growth amid a promotional retail environment.

MarketBeat data shows Under Armour currently has a consensus analyst rating of "Hold" with an average price target of $6.43—suggesting that while optimism is building, not all Wall Street analysts are fully on board with the turnaround thesis.

The Investment Case

For investors, the Fairfax stake increase presents an interesting asymmetric opportunity. When a disciplined value investor with Watsa's track record commits substantial capital to a beaten-down stock, it often signals that the risk-reward has become attractive.

Whether Under Armour can deliver on its turnaround promise remains to be seen, but the billionaire backing suggests that at least one sophisticated investor believes the company's best days may still be ahead.