Investors are in for a wild ride later this week as Under Armour Inc (NYSE:UA) prepares to report its first-quarter earnings results before the open on Thursday — that is, if history is any indication. The stock fell 23% the day after the last quarterly release, and 14% the quarter prior to that.
I wouldn’t to trade the stock ahead of tomorrow morning’s numbers, but there could be an opportunity afterwards, depending on the results. Wall Street is expecting a loss of $0.04 a share, down from a gain of $0.04 a share last year, on 7% revenue growth to $1.12 billion.
Those are the headline numbers, but there are two other very important metrics that I’ll be keeping a close eye on. The first is international sales, which gained 55% in the fourth quarter to $125 million. The second is the company’s growing interest expense, which is due in part to a big increase in debt levels. Last quarter, Under Armour saw its interest expense double year-over-year to nearly $8 million. Management expects the figure to come in at $40 million in 2017.
Looking at the chart (below), there is no doubt Under Armour is ugly from a technical perspective. It has been entrenched in a downtrend for over a year, which is why I remain bearish on the company ahead of earnings and until it can turn things around. That would require beating consensus and providing improved guidance for the rest of the year.
This will be a very important report for the company. It’s what I like to call a “show me” quarter. If Under Armour can show us some green shoots, there may be money to be made.
Here’s what I would be looking in the price action following the report: If UA holds above the all-time low of $17.05, it would be a swing trade opportunity. The combination of short-sellers covering their positions and buyers that are trying to pick the bottom could lead to a bounce that could send UA back to price resistance at the $19.50 area. However, if the all-time low is taken out, it would suggest the sellers are still clearly in control and indicate another leg down is on the horizon. (I also explain all of this and more in a video chart show on my MoneyWire website. UA is the Chart of the Day, and you can view it here.)
UA is a widely followed company about to release an important report. As a trader, I would take my cues from the price action after the numbers are out rather than try to predict the results ahead of time.
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.