(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Under Armour, Inc.'s (UAA, UA) technical chart is suggesting a 14% decline over the short term. Additionally, options are pricing in massive levels of volatility following the company's first-quarter results on May 1. Analysts have been slowly upping their price targets on average for Under Armour, but at the same time estimates for the current quarter have been falling. (For more, see also: Can Under Armour Make a Comeback?)
Analysts are looking for the company to report revenue in the first quarter that is flat versus last year at $1.118 billion, while losing $0.05 per share also in line with previous years' results. But the options are implying that the stock could rise or fall by as much 12.3% by expiration on May 18.
A 14% Decline
The technical chart of Under Armour shows the stock hitting a level of resistance at $16.75 while running into a downtrend as well. The relative strength has been trending lower since reaching an overbought level, above 70, back in mid-February, while the stock has traded sideways, a bearish divergence. Should Under Armour decline, it could fall by as much as much as 14% to $14.40, the next level of support on the stock chart.
The long straddle options strategy is implying a rise or fall of over 12% by expiration on May 18, from the $17 strike price, with minimal open interest at that strike price. But the options are showing some bullish signals at the $17.5 strike price. There are nearly 7,300 open call contracts, to only 2,000 open put contracts, but the number of open calls at that strike price has more than doubled since the beginning of April. Meanwhile, another 9,000 open call contracts sit at the $20 strike price, and those contracts saw a big jump in open interest since April 18.
Upping Price Targets
Analysts have started raising their price targets on Under Armour since the start of the year, to an average of $14.76, using data from Ycharts, a jump of 11.5%. But the number of analysts with a "buy" or "outperform" rating is incredibly low, with only 21% of the 34 analyst covering the stock. Meanwhile, 50% rate it a "hold", and 29% rate at a "underperform." (For more, see also: Under Armour Is A 'Brand in Peril': Susquehanna.)
Analysts have also been trimming their outlook for revenue and earnings since the beginning of the year, with revenue estimates dropping by nearly 2%, to $1.118 billion from $1.138 billion.
UAA Revenue Estimates for Current Quarter data by YCharts
It seems clear that where Under Armour goes after results, will depend heavily on the results and the guidance.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.