There are only as few cult stocks that investors will buy no matter what. When they fail it can be spectacular.
Under Armour is one of those cult stocks. The 20% decline in four days will eventually be a buying opportunity.
UA - Under Armour - Company Profile
Under Armour, Inc. develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company offers its apparel in compression, fitted, and loose types to be worn in hot, cold, and in between the extremes. It provides various footwear products, including football, baseball, lacrosse, softball and soccer cleats, slides, performance training, running, basketball, and outdoor footwear. The company also offers accessories, which include headwear, bags, and gloves; and digital fitness platform licenses and subscriptions, as well as digital advertising, as well as licenses its brands. It primarily provides its products under the UA Logo, UNDER ARMOUR, UA, ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR, PROTECT THIS HOUSE, and I WILL, as well as ARMOURBITE, ARMOURSTORM, ARMOUR FLEECE, and ARMOUR BRA trademarks. The company sells its products through wholesale channels, including national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments, and leagues and teams, as well as independent distributors; and directly to consumers through a network of brand and factory house stores, and Website. Company description from FinViz.com.
Under Armour was crushed last week when they reported earnings. Shares fell from $38 to $31 and still falling. The company reported earnings of 29 cents compared to estimates for 25 cents. That was a 26.1% increase over the year ago quarter Revenue rose 22.2% to $1.471 billion and beating estimates for $1.453 billion. UA reported revenue growth of more than 20% for the 26th consecutive quarter. They guided for the full year for a 24% increase in revenue to $4.925 billion. Earnings are expected to rise 8% to 9%.
The company warned that earnings growth would slow because they are going to be investing heavily in expanding their retail footprint. They also cautioned that apparel sales growth will be slower than prior guidance. The company still expects sales growth to $7.5 billion in fiscal 2018 but margins are going to contract because of the increased capex spending and marketing.
CEO Kevin Plank blamed the bankruptcy of Sports Authority for removing several hundred retail locations from their marketing effort. He said the increased spending to expand the retail footprint both in the U.S. and overseas is required to become a $10 billion company.
Citigroup reiterated a buy rating saying the long term guidance for mid-teens earnings over 3 years is very good for a growth company and the pullback represents a buying opportunity.
Several other brokers downgraded the shares from buy to hold. Those were Telsey Advisory Group, Mizuho and Deutsche Bank.
Earnings Jan 24th.
I believe there is a buying opportunity here. We just have to wait for it.
Shares closed on Friday at $31. I am recommending we trail a buy trigger a couple dollars behind the price until the stock finds a bottom. This is a cult stock and it will rebound. My original price target was $30 but if the market declines sharply next week, we could see $28 or even lower. I am going to start the entry trigger at $33 and I will lower it each week until we see a rebound.
With a UA trade at $33
Buy Jan 2018 $35 LEAP Call, currently $3.30, no initial stop loss.