It’s never a slam dunk, but with Under Armour Inc (UA) under a full-court press from bears, it’s time for bulls to steal some UA stock for their long-term portfolios.
For investors who believe in the secular growth story of UA stock, it’s far from a game over situation. In fact, with shares off 20% from their recent post better-than-expected earnings jump; UA stock is offering growth at a reasonable price.
Reasonable price? A trailing P/E of 70, forward multiple of 45 and PEG of 2.25 might have some investors begging to differ. But if we’re to believe one bit of important insight, growth at a reasonable price for UA stock has rarely been as cheap historically.
According to some analysis by one trader commenting recently on UA stock, “Morningstar has a fair value of $33. Current price to fv (fair value) is 1.36. The only time it has ever been this low over the past 5+ years is before 4Q15 earnings release when price got to mid-$60s.”
That was back on April 27, when UA stock was near $45. As a caveat and despite having access to Morningstar, I haven’t personally been able to confirm the historical stat referenced.
Nevertheless, with UA now trading at $37.45, the simple but important math leads to a premium over fair value of just 1.13 — and tantamount to a steal in at least one person’s playbook!
And in our playbook and looking at the price chart of UA stock, it may not be a slam dunk, but the idea of stealing some shares from bears at reasonable-looking technical levels is here.
UA Stock Daily Chart
Will purchasing shares of UA stock at current prices look like a buzzer-beating 3-pointer from Steph Curry? Maybe. But again and as stressed, there are no guaranteed slam dunks.
What I can say is that in reviewing the UA stock chart and as a trader looking to pick up a growth name at a discount, I like what I see.
Thursday’s session ended in a doji candlestick. It also happens to be a decision candle that has frustrated bulls on a couple different occasions the past couple weeks as shares of UA slid lower.
From a contrarian standpoint, the multiple dojis and false triggers could mean there’s fewer fast-money fingers trying to play a UA bounce due to recent frustration. And that’s bullish.
Will this doji work for UA stock bulls and become the charm for longer-term investors? Again, maybe it will, but nobody knows.
What we can appreciate in UA stock is following one larger correction, shares have corrected yet again.
Given what’s already been stated, this is tantamount to buying growth at a reasonable price on the premise of a secular growth story at work in Under Armour. And in our estimation, buying shares of UA looks reasonably better if we hedge the bet with a collar.
UA Stock Bullish Collar
Reviewing UA stock’s options board, the July $35 / $42.5 collar is attractive. Priced mid-market for $37.95 versus a standalone long stock position in UA at $37.45, the trader pays a 50 cent premium over shares in order to have defined downside protection of about 8% for the next couple months.
The upside profit in UA stock is initially capped by the wider July $42.5 call sale. The upside is if UA stock rises, future adjustments can always be made in order to ride a potential trend higher.
On the other hand, if UA stock heads aggressively lower, the trader has the long July $35 strike as part of the position. The put allows for, potentially, much smaller losses than their buy-and-hold stock trading peers.
Bottom line, if you’re committed to buying and purchasing additional UA stock on anticipated short-term weakness within a perceived larger secular trend of growth, the collar strategy will afford you a much stronger financial and mental position to act from.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article but may do so after publication. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
