MorningWord 4/8/15: $UA – Protect This House

by Dan April 8, 2016 9:20 am • Commentary

Last year, Under Armour re-committed to two of the biggest names in sports, Steph Curry of the NBA’s Golden State Warriors and golfer Jordan Spieth, winner of the 2015 Masters. That commitment was to the tune of tens, if not hundreds of millions combined for the next decade. And the two stars aren’t just a flash in the pan for 2015. This morning both are at the top of the 2016 leader-board of sports mega-stars:



Both stars seem to be at important inflection points. Steph just defeated the team that many feel is the only obstacle to the Warriors repeating as NBA champs. And if they win out they can eclipse the Michael Jordan led ’96 Bulls regular season win record. If Spieth were to win a second consecutive Masters at such a young age, the comparisons to a young Tiger Woods would be inevitable. Jordan, Woods and Nike. That’s pretty elite company.

You know what else appears to be at an inflection point? Under Armour’s (UA) stock. On Wednesday’s Fast Money Evercore ISI’s technician Rich Ross highlighted a few stocks with high interest that look poised to breakout, and UA was one of them (watch here).

Ross highlighted the stock’s recent consolidation, just below the mid point of the 1 year range of $35 and $55, and you got it, just below the stock’s 200 day moving average, a momentum indicator that the stock has not been above since late November:

UA 1yr chart from Bloomberg
UA 1yr chart from Bloomberg

The stock’s next identifiable catalyst will be Q1 earnings on April 21st and the options market is implying about 8% between now and Friday April 22nd’s close.

I suppose the problem for some when it comes to UA is the fact that the stock trades 130x expected 2016 earnings, but I suspect most long term bulls are more focused on the company’s mid 20% sales growth expectations for years to come, and the fact that only 10% of the company’s $4 billion 2015 sales came from outside the U.S.  The stock’s high short interest is reflective of investor’s concern about valuation, and their ability to meaningfully take market share from Nike (NKE), but I suspect that while the bull story does not hinge on future success of sponsors like Curry and Spieth, their continued success might be the thing that causes investors to look past such mundane things as triple digit P/E ratios.

In late January UA rallied 22% following better than expected results, but it is important to note that was off of a very oversold condition (down 35% from its all time highs last fall) and in a very pessimistic market.  I’d be very surprised to see that sort of reaction to Q1 results, but 10% in either direction seems about fair given the building tension and high short interest.  We will be sure to check back closer to earnings and look at possible trades.