Valuation matters to me. In fact, I’m particularly fond of one of the many aphorisms coined by Warren Buffett: “Price is what you pay, value is what you get”. With that in mind, I read an article this week in Barron’s suggesting Under Armour could double from its current price (thanks to @chriswmayer). Eye catching for sure. The company has been beaten down recently, and isn’t particularly expensive, but this wasn’t always the case:
“Under Armour must have been overvalued back in 2005, when it sold at a P/E of 90 and had a price-to-sales multiple of 6.3. Despite what looked like a crazy valuation, it is up nearly 500% since 2005, even after the huge pullback in the past year.”
I’d have struggled to buy at 90 times earnings and over 6 times sales, but are there circumstances in which I would pay a higher price? Yes. I’d pay a higher price for perceived higher value, and one way to determine value is through free cash flows.