Athletic apparel company Under Armour (NYSE:UA) has remained under tremendous financial pressure this year. The company has had extreme difficulty recovering from the impact of the novel coronavirus. The Under Armour stock price reflects the company’s woes as the buying volume has been anemic.
Whether you see the glass as half-empty or half-full depends on your investing philosophy. Bargain hunters should relish the opportunity to buy Under Armour shares at a deep discount. Folks who focus on sentiment and share-price momentum, on the other hand, aren’t likely to find Under Armour stock attractive.
The company’s recently released quarterly fiscal data suggests that Under Armour is indeed struggling. Yet, risk-tolerant contrarians can find reasons to buy Under Armour stock nonetheless. It’s mostly a matter of envisioning a turnaround story for a company that, at the moment, has few supporters in the market.
A Closer Look at Under Armour Stock
Unlike stocks in the technology and consumer goods segments, retail apparel stocks mostly haven’t experienced huge recoveries this year. There are a handful of exceptions to this, but Under Armour stock certainly isn’t among them.
In early 2020, the battle line between the bulls and the bears was $18. Would Under Armour stock holders be able to hold that line? Or, would the bears gain control and take the share price below $18 or possibly even $16?
Those questions almost seem quaint at this point as Under Armour stock tumbled quickly below $10 during the coronavirus crisis. In fact, at one point it reached a heartbreaking 52-week low of $6.37.
Now in August, Under Armour shareholders are fighting just to achieve and hold the $9 and $10 levels. And with trailing 12-month earnings per share of -$1.51, it’s tough to envision Under Armour stock reclaiming its pre-Covid-19 peak in the near future.
A Lost Quarter?
Finding the good amid a mostly bad quarter is a tall order. Yet, that’s what Under Armour stock bulls will need to do as they sift through the wreckage of the company’s second-quarter earnings report.
During that time frame, Under Armour posted an earnings loss of $182.9 million, which would amount to 40 cents per share. That’s not particularly encouraging, but at least it beat the Wall Street consensus estimate of a loss of 41 cents per share.
Plus, there was a revenue beat to “celebrate,” if that’s the right word for it. For the second quarter, Under Armour reported revenues $707.6 million, indicating a 41% year-over-year decline. At least we can say that this result beat the Wall Street expectation of $537 million in quarterly revenues.
So, was this a “lost quarter” for Under Armour? Not necessarily. The company did report “significant e-commerce growth around the world during the quarter,” so at least the shareholders can use that nugget of information to balance out the underwhelming stats.
Not So Bad After All
Having a contrarian spirit means investing in companies during their worst, most miserable moments. It also involves homing in on the prospect of better times ahead.
The majority of Under Armour’s stores are now open again. Plus, some consumers have decided to focus on their health and fitness during lockdowns. That could be viewed as bullish for Under Armour and its stock.
Besides, not everyone is completely pessimistic. Bucking the trend of bearish sentiment, Susquehanna analyst Sam Poser even went so far as to upgrade his rating on Under Armour stock from “negative” to “neutral” while raising his price target from $4 to $9.
Even better, Jeffries analyst Randal J. Konik raised his share-price target from $11 to $13 while reaffirming his “buy” rating on Under Armour stock. It’s possible, then, that the worst is over as this struggling performance apparel retailer works its way through a truly challenging year.
The Bottom Line
The trajectory for Under Armour stock isn’t to the upside at the moment. You can choose to view this as problematic. Or, bona fide contrarians can take a long position in anticipation of better times ahead and, just maybe, a turnaround story in the making.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.