Under Armour Inc (NYSE:UAA) has been in a consistent downtrend since September 2015, and while a lot of investors would like to see that trend broken, it isn’t showing any signs of slowing down soon.
UAA stock spent much of 2016 trying to gain its footing, bouncing above and below both major moving averages but having little success getting anything to stick. Then a one-day 13% crash after earnings in October 2016 exacerbated things for the sickly stock and it has been downhill ever since.
As you can see above, UAA has attempted to build a base to end the downtrend, but each one has seen the shares fail to break out. The stock rallied to its 50-day moving average (the blue line) in December and earlier this month, and both times it fell back to hit a new yearly low.
The end result has been a continued series of lower lows and lower highs with the 50-day moving average acting as significant resistance. Should this trend continue, I suspect we’ll see UAA stock in the low-to-mid $20s by the end of the first quarter.
Under Amour’s one potential saving grace is its next earnings report, which is expected out before the open next Tuesday, Jan. 31. The Street is currently looking for earnings of 25 cents a share on revenue of $1.41 billion.
There’s always a chance we’ll see a solid report and subsequent relief rally in UAA stock, but any upside would likely be short-lived as the consensus estimate for full-year earnings is 69 cents a share, up just 15% from 2016. Based on that estimate, UAA stock is trading with a forward price-to-earnings ratio of 42.
That would be acceptable for a high-growth company, but not an apparel company expected to grow earnings 15% this year.
There’s no question that Under Armour has paid an arm and a leg for athlete contracts and sponsorships, and it has also tried to expand into new areas the last few years. Those investments may pay off over the long term, but until we start to see those benefits I would stay away.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on
Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
