We’ve talked several times over the last year about why I’m staying away from Under Armour Inc (NYSE:UA), and I’m sorry to say my opinion still hasn’t changed.
Under Armour is the definition of an ugly stock chart. Since breaking below its 50-day moving average (the orange line) late last year, UA stock has been in a downward spiral. Some may think earnings could provide the spark this chart desperately needs, but if recent history is any indication of what’s to come, I’m not holding my breath.
The two gaps on the chart above represent the trading initially following the last two earnings reports. UA stock traded in a narrow range in the three months after the first quarterly release, only to crater again when the next round of disappointing numbers were announced. Once again, Under Armour has spent the last three months in a range.
Based on the historical trend, odds are that the shares will underperform in the aftermath of the next earnings report on April 27. The silver lining here is the possibility that all of the bad news is already being priced into UA. For the first quarter, analysts are looking for a loss of $0.03 per share, down from a gain of 4 cents per share last year, on a 5.7% gain in revenue to $1.11 billion.
A Closer Look at UA Stock
Under Armour stock has significant resistance at the $20 area, which is the high of the last few months and the bottom of the gap from the last earnings report. There is also some near-term resistance at the 50-day moving average, currently $18.49, which has proven to be an area of selling recently.
So, even if shares of UA stock do rally post-earnings, any momentum would likely be thwarted once shares reach those two resistance levels.
There is no significant support on the downside and the stock could fall to the low teens before valuations come back in line.
Speaking of valuation, UA stock is trading with a forward price-to-earnings ratio of 43.9 based on 2017 earnings estimates of 41 cents per share. And, while the stock has fallen more than 45% in the last six months, it is still oversold based on the fundamentals. Therefore, lower prices are likely ahead.
I believe management will, at some point, get the company back on track, but assuming that day is today would be premature. Until, then I’m staying away.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt is currently in the midst of an exciting launch centered around his trademark three-prong investing approach that targets the mega-trends old Wall Street is missing out on. His next-gen investing strategy is delivering enormous profits in stocks and ETFs. Click here for more information on his latest venture.