Is Under Armour going Under?
Under Armour Inc (UA) desperately needs to develop a new wicking synthetic fabric to arrest the precipitous fall in its share price this year. Though rather than UA’s typcial moisture-wicking, the new fabric needs to wick short sellers away from UA’s shares.
Keep your friends close and your enemies closer
Today I received a one week free invitation to Jay DeVincentis’s Stock Baramoter. I have found Jay’s views on the market of interest in the past, so I had a look at some of his current ideas. [Details of how to take advantage of the free week are included below]
His current update featured the following short recommendation on UA.
Under Armour is going to need more than armour to survive.
Periodically a stock shows up on our radar that I just have to recommend as a short play. No one wants to see a company do poorly. But remember, as a trader, it’s not personal, it’s business. Your job is to identify the most likely candidates to move in such a way to make you the most money possible.
If you calculate out a few simple fibonacci projections on this stock, it’s ugly. Here’s the chart:
And I’m not big on financials because I believe the stock chart is the only truth you need to know – but a 67% reduction in earnings per share last quarter isn’t necessarily a good thing. 45M in debt isn’t either, but a current ratio of 3 is tolerable… But that may change…
The January 29th Q4 earnings announcement and conference call were more loose thread for the shorts to pull on. Though the UA story really started to unravel back on January 14th when they pre-announced the earnings shortfall.
Looking at the year to date graph below you can clearly see UA’s share price divergence from the S&P Retail Index.
The shorts are all over this Motley Fool Rule Breakers core holding like one of UA’s own tight fitting compression tops. However, with 20% of the shares sold short any sign of improving business conditions could put a rocket under UA. The reality of UA’s business is that they are both earnings and cash flow positive. UA has a strong balance sheet and despite the atrocious retail conditions of 2008 they still managed an impressive 20% growth in sales. I’m adding UA to my watch list, as trying to catch this falling knife would be even more foolish than shorting an already fallen stock based on a chart alone.
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