Embattled Under Armour Inc (NYSE:UAA) needs a break — and it looks like it may have gotten a few. Stephen Curry and the Golden State Warriors took home the NBA title, bringing plenty of smiles to Under Armour executives. As MoneyWire editor Matt McCall noted earlier, “Curry is one of the biggest names on the roster of athletes that endorse Under Armour, and having success on the NBA’s biggest stage is no doubt good for UAA stock.”
CEO Kevin Plank also got some help in the form of new president and chief operating officer, Patrik Frisk — an industry veteran whose hiring is putting some life into Under Armour shares Tuesday morning.
Market sentiment is also in UAA’s court. Shares are up about 10% so far this month — an absolutely critical turnaround. Prior to June’s rally, UAA stock was staring at a year-to-date drop that had taken shares down by a third. That has pared the company’s 2017 losses to a quarter, which isn’t pretty, but it’s better than nothing, and a larger recovery could develop from this groundwork.
Technical analysts may point toward a stabilizing channel that’s been in play since the end of January. The bears had multiple opportunities to drop UAA stock decisively below the $19 level, and while it has gotten hairy, Under Armour has been resilient, and the channel has held.
But we’ve seen this pattern before.
When Under Armour started to break down during fall and winter 2015, some saw it as a temporary correction. When shares gapped down horrendously a year later, those who utilized the contrarian argument got burnt.
Will this year be different?
UAA Stock Still Faces Significant Resistance
I seriously have my doubts. While I admire the bold speculators, Under Armour still must climb over a number of challenges.
One is purely psychological. You can call it playing “Dr. Phil” or by its real name, behavioral finance, but it doesn’t matter. Losing sucks, plain and simple. The pain of losing money is often far greater than the joy of an equivalent profit. Many people who invested in UAA stock at its highs are unlikely to come back for an encore performance after the beating they took.
Second, Under Armour needs to figure out exactly what it is.
The company’s partnership with SAP SE (ADR) (NYSE:SAP) to extract consumer insights through data science seems gimmicky. It’s obvious what the consumer wants, and yet UAA is not acting on it. Both InvestorPlace writer Tom Taulli and I agree that rival Adidas AG (ADR) (OTCMKTS:ADDYY) has done a far better job of understanding its audience. There’s a reason why ADDYY is up 40% in the past year while Under Armour is off by the same amount.
Technically speaking, Under Armour does have a couple of bullish signals in the oven. Shares recently bounced off the 50-day moving average and up through the rising 20-day MA. And the latter moving average has just crossed back above the 50-day MA — a bullish cross.
However, Under Armour has loads of resistance waiting for it before UAA can record any kind of serious gains. There’s the $23.50 area, which represents a 38.2% Fibonnaci retracement level, and where shares were rebuffed earlier this month. Further north are the steadily declining 200-day MA, currently at $26.65, as well as price resistance at $29 where shares originally capped down at the end of January.
Under Armour Is Its Own Worst Enemy
For me, the biggest problem is that Under Armour is deliberately fighting a battle it can’t win. Financially, sports endorsements are getting nuttier by the day. They’re also not providing the return on investment they once did.
That’s not the biggest problem in the world for Adidas, which has a market capitalization of $41.4 billion, or Nike Inc (NYSE:NKE), with nearly $91 billion. But Under Armour is still a smaller fish of just $9.5 billion, and it doesn’t have nearly the resources to throw at sports celebrities.
Furthermore, Under Armour continues to overextend itself. I do think they smartly backed out of the Real Madrid sponsorship proposal … but the idea that it was even in serious negotiations is a worry point for me.
I admire the moxie, but Under Armour needs to remember its shareholders. UAA stock peaked back in 2014 — and while traders have made money on some upswings, buy-and-hold investors have little to crow about.
Management must decide what’s more important: making money through its core strengths or boxing three weight classes above its own.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.