Despite an upbeat earnings call in April with revenue growth of 30% in the first quarter, Under Armour Inc (UA) has plunged dramatically in the past month. With Under Armour shares down over 20% from its April peak near $47, is the market giving investors a rare gift, or is there a good reason people are avoiding this stock?
Click to Enlarge Under Armour stock’s relative strength index reading of 20 means shares are in oversold territory, hitting its lowest level since bottoming out at $31.61 in January.
The problem, however, with categorizing a stock as a buying opportunity on oversold indicators alone is that equities can remain oversold for vast periods of time.
UA has been in oversold territory for two weeks now, and I can’t say that a bottom has formed just yet.
Shares have limited support at $35.17, their low on Feb. 8, which could be an area where buyers re-enter the stock. However, the more likely support level is UA’s lowest closing price this year at $33.56.
Still, support levels don’t mean much until the stock’s RSI moves above 30 and out of oversold territory. That would be a solid buy signal, but we aren’t seeing it yet.
UA Stock: Less Attractive Than Nike
UA isn’t all that attractive on the fundamentals side either, with a price-earnings to growth ratio of 2.25 and a forward P/E of 44.5. Compared to its larger peer Nike Inc (NKE), UA looks even less attractive, as Nike sports a PEG ratio of 1.87 and a forward P/E of 23.
Shares of NKE have also trended downward, but its broader product line and stronger fundamentals would push me to buy it over UA if I had to choose just one.
We could see an interesting matchup if the Cleveland Cavaliers and Golden State Warriors both make the NBA finals, as current MVP Stephen Curry (whose shoe brand is affiliated with UA) would go head-to-head with former MVP Lebron James (who is affiliated with NKE).
But in the meantime, Under Armour will have to hustle to jack up its own shares and keep up with Nike’s massive global dominance.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks, the ETF Bulletin and Co-Editor of Breakout Stocks.
