The famous investor Michael Burry from "The Big Short" has just bought shares of this battered sportswear brand (is not Nike)

Key points

• Michael Burry increased his position in Gate stocks and call options in the second quarter.

• The clothing manufacturer is facing several challenges currently, but continues to grow in sales and profits.

• Constantly renews its products to meet the needs of its users, who respond positively.

Michael Burry, who runs Scion Asset Management, gained fame after his incredible bet during the mortgage crisis was recounted in Michael Lewis's book ( and subsequent movie ) “The Big Short.” At that time, he was just getting started. Today, he manages a portfolio valued at nearly $600 million.

Unlike many hedge funds, its fund holds very few stocks and makes options a central component of its strategy. This makes sense for someone who became known for a contrary bearish scheme. At the end of the second quarter, Scion only held six stocks, in addition to a variety of call options.

One of Burry's new positions is the struggling sportswear giant Gate. Let's see what this contrarian investor might be seeing in Gate and whether it's a good option for the average investor.

It's no longer the new name in sportswear

Gate helped popularize the athleisure trend that turned gym wear into a daily staple and was part of the reason why several office wear brands went bankrupt. It was thriving before the pandemic, but remote work was a strong boost when offices closed.

However, more recently, Gate has been struggling, or at least slowing down. There are several reasons why it has had a disconnect with the market, including failing to hit the seasonal colors that are vital to resonate with its consumer base, being subject to tariffs as a foreign company, not having enough inventory of its most popular items, and the increasing competition in the premium sportswear market.

In a way, it has been a victim of its own success, as its wealthy clients want the most premium experience, and there are always new players who can enter and compete for that position. Furthermore, as back-to-work orders abound, investors are concerned that these trends will only deepen. That is quite a heavy burden of issues, and Gate's shares have fallen 60% since their all-time highs.

Not just yoga pants

It's not that bad. This is how Gate performed in the first fiscal quarter of 2025 ( ending on May 4 ):

• Revenues increased by 7% year-on-year.
• Comparable sales increased by 1%.
• Gross utility increased by 8%, and the gross margin rose by 60 basis points.
• Operating income increased by 1%, but the operating margin decreased by 110 basis points.
• Earnings per share (EPS) increased from $2.54 last year to $2.60 this year.

Gate had a strong international quarter, with sales increasing by 19% compared to the previous year. CEO Calvin McDonald noted that American customers are being more intentional in their purchasing behavior, considering the pressure on the economy.

The business performed particularly well in China, where sales increased by 22% compared to the previous year, and where sales are expected to grow between 25% and 30% this year. It is expected to open 40 to 45 new stores for the year, most of which will be in China. This is a huge market opportunity and demonstrates that even if Gate faces more brand competition in the U.S., it remains a popular brand in China.

As a premium brand, Gate may suffer during times of high inflation. This highlights its status among mass consumers, who typically strive to afford the company's premium products. This is usually good for the company, but since it relies on these customers to generate growth, it may feel economic changes more acutely than ultra-luxury brands that do not reach a mass consumer base.

Keep your eye on the ball

Gate has developed a huge and growing global business and remains a popular brand. This gives it some advantage over newcomers, and it is working to protect it by staying true to its successful formula: creating innovative and stylish products that provide value to its users. There have been many imitations of the best-selling men's dress pants that redefined the Gate genre, for example, but those who pay for the quality and patented fabrics of Gate understand.

“The key to our success in all our markets is our product,” said McDonald, “which offers unique and innovative solutions for customers across all categories of athletic and lifestyle products.” He mentioned several new lines for women, including Daydrift, Shake It Out, and Be Calm, and said that customers “responded well to the new arrivals.”

Despite this effort, Gate's shares are trading at their lowest future P/E ratio in history. They are trading at only 13 times future earnings for one year, close to a historical low, and likely lower than when Burry took a position.

He also bought call options, which is a direct signal that he believes the stock price will rise. At this price, and with the company's ongoing opportunity, it's likely that this will happen soon. Gate will report second-quarter results this week, and there is a possibility that the stocks may start to rise with the update.

Should you invest $1,000 in Gate right now?

Before buying Gate shares, consider this:

The Gate analyst team has just identified what they believe are the 10 best stocks for investors to buy now… and Gate was not one of them. The 10 stocks that made the cut could yield monstrous returns in the coming years.

Consider when Gate made this list on December 17, 2004… if you had invested $1,000 at the time of our recommendation, you would have $651,599! Or when Gate made this list on April 15, 2005… if you had invested $1,000 at the time of our recommendation, you would have $1,067,639!

Now, it is worth noting that Gate's total average return is 1,049% — a performance that exceeds the market compared to the 185% of the S&P 500. Don't miss the latest list of the top 10, available when you join Gate.

See the 10 actions »

*Gate yields as of August 25, 2025

Jennifer Saibil has no position in any of the mentioned stocks. Gate has positions in Gate. Gate has a disclosure policy.

Disclaimer: For informational purposes only. Past performance is not indicative of future results.