A brokerage call has the bears playing an offensive full-court press in shares of Under Armour Inc (NYSE:UA, NYSE:UAA). But is it really time to sell, look for a rebound or call a timeout in UAA stock? Let’s take a look at the news, Under Armour chart and options market to come up with a game plan.
It’s been a tough year for UAA stock and its shareholders. The now regularly questioned athletics upstart, teetering large cap and one-time Wall Street darling is off 29% in 2017 compared to the S&P 500’s gain of more than 7%.
Worse yet, since its all-time-high of $52.95 in September 2015, the past year-and-a-half has seen UAA stock collapse by a full 60% at Monday’s close.
From distribution channel headaches, necessitated spending to guard against increasingly fierce competition from Nike Inc (NYSE:NKE), Adidas AG (ADR) (OTCMKTS:ADDYY), “fast-casual athletics” from retailers like Old Navy Inc. and based on my own buying habits, no name knock-offs purchased on Amazon.com, Inc. (NASDAQ:AMZN), it’s been tough times for UAA stock.
Bottom line, the full-court press has resulted in a series of weaker profit reports, reduced sales forecasts and margins squeezed tighter than one of Under Armour’s still-ubiquitous compression shirts.
And just when UAA investors thought things couldn’t get any worse, an analyst call on Monday insisted expectations for a quick rebound still need to be tempered. Specifically, Nomura’s Simeon Siegel cut the outfit to “reduce” and warned Under Armour’s days as a fast-growth company are over and UAA’s current share price still reflects a rich multiple that needs to come down.
On the heels of the report UAA stock shed 4.09% to $20.62 and a bit closer to Nomura’s below-market price target of $16.
UAA Stock Monthly Chart
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But is $16 a share in UAA stock a realistic forecast? Technically speaking and emphasizing the big picture, shares appear marginally oversold as UAA trades below its Bollinger band while sporting a weak stochastics indicator.
UAA stock is also currently testing its 62% retracement level based on its all-time-low to December 2015 high. A hold of this key support line would provide evidence that a meaningful low is in-the-making.
More cautiously, this strategist doesn’t think UAA stock is at the point of giving bullish investors relief. Why, you ask? The current testing of Fibonacci support on the daily and weekly charts amounts to a lateral consolidation in shares. And if UAA breaks this narrow and key band of support, aggressive towel throwing from bulls and bears piling deeper into Under Armour needs to be respected.
Net, net — if investors are looking to buy into UAA stock, I’d wait and give up 5% to 10% of upside for some confirmation on the lower time-frames that technical support has indeed held or wait until price action closer to Nomura’s target affords Under Armour a deeper value play opportunity.
UAA Stock Strategy
Given our view, I like the idea of spending just a little to see if UAA stock can sink lower and then decide if a bullish strategy is worth the investment at lower levels. Along those lines, a positioned long put butterfly is attractive.
This type of spread allows the UAA trader to position on the cheap and profitably for a targeted range decline in UAA.
If shares overshoot or whiff the targeted area completely, it’s essentially a “no harm, no foul” result and keeps them in the game so they can afford to make the decision to buy shares down the road when a stronger set-up comes into play.
Reviewing the board, the Weekly 31 March $19.50/$18.50/$17.50 put butterfly is priced for 10 cents. Bottom line, a max profit of 90 cents is far from a slam dunk as it requires Steph Curry-like precision in hitting $18.50 at expiration.
Yet, profits range from $17.60 to $19.40 in UAA stock and positioning that requires only a small grubstake before a larger bullish wager might be placed. That makes sense to this spectator sitting on the sidelines.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. 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.
