Will Under Armour Continue This Explosive Run?

With shares of Under Armour (NYSE:UA) trading around $63, is UA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Under Armour is engaged in the development, marketing and distribution of apparel, footwear and accessories for men, women, and youth. The company’s products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields worldwide. The athletic and fitness move is currently seeing explosive growth, and Under Armour is ready to capitalize on it. As an increasing number of atheletes and fitness enthusiats rise around the world, companies like Under Armour stand to see rising profits. Look for the sports, fitness, and athletic trends to continue and surely drive profits for Under Armour to new levels.

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T = Technicals on the Stock Chart are Strong

Under Armour stock has seen a strong surge higher in its stock prices over the last several years. This powerful trend has taken the stock to all-time high prices and looks to be headed higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Under Armour is trading above its rising key averages which signal neutral to bullish price action in the near-term.

UA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Under Armour options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Under Armour Options

29.63%

60%

58%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Under Armour’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Under Armour look like and more importantly, how did the markets like these numbers?

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2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-50%

51.56%

22.73%

0%

Revenue Growth (Y-O-Y)

22.69%

25.49%

23.56%

26.82%

Earnings Reaction

1.32%

5.69%

-6.51%

9.11%

Under Armour has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been excited with most of Under Armour’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Under Armour stock done relative to its peers, Nike (NYSE:NKE), Columbia Sportswear (NASDAQ:COLM), Dick’s Sporting Goods (NYSE:DKS), and sector?

Under Armour

Nike

Columbia Sportswear

Dick’s Sporting Goods

Sector

Year-to-Date Return

30.65%

23.29%

10.96%

13.92%

16.43%

Under Armour has been a relative performance leader, year-to-date.

Conclusion

Under Armour provides athletic apparel, footwear, and accessories to a growing health and wellness, athletic, and fitness enthusiast population around the world. The stock has been on a powerful move towards higher prices that has led to it trading at all-time highs. Earnings and revenue figures have increased over most of the last four quarters which has led to excited investors. Relative to its peers and sector, Under Armour has led in year-to-date performance by a wide margin. Look for Under Armour to OUTPERFORM.

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