Does Under Armour Support Higher Prices?

With shares of Under Armour (NYSE:UA) trading around $55, is UA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Lets analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Under Armouris engaged in the development, marketing and distribution of apparel, footwear and accessories for men, women and youth. The companys products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields worldwide. Most of its products are sold in North America. Internationally, Under Armour sells its products in certain countries in Europe, a third party licensee sells its products in Japan, and distributors sell the companys products in other foreign countries. In recent years, athletic products are making their way into the mainstream culture as fitness becomes an increasing concern to people across the globe. Under Armour provides the products demanded by the exponentially growing fitness, wellness, and athletic communities.

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T = Technicals on the Stock Chart are Strong

Since reaching lows during the Financial Crisis, Under Armour stock has made a significant run higher and is now trading near all-time highs. If the stock can break highs established last year, the uptrend should surely have legs to coast 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 untangling 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

39.65%

86%

85%

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

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

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

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

54.10%

22.73%

0%

21.74%

Revenue Growth (Y-O-Y)

25.48%

23.56%

26.82%

22.93%

Earnings Reaction

5.69%

-6.51%

9.11%

5.2%

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

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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), Ralph Lauren (NYSE:RL) and sector?

Under Armour

Nike

Columbia

Ralph Lauren

Sector

Year-to-Date Return

14.94%

16.01%

8.06%

11.27%

13.48%

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

Conclusion

Under Armour provides athletic products that are showing increasing demand due to the exponential growth the fitness, wellness, and athletic communities are seeing. Since reaching lows in 2009, the stock has been performing extremely well for investors and is now trading near all-time high prices. Earnings and revenue figures have been steadily growing which has pleased investors. Relative to its peers and sector, Under Armour has been a performance leader. Look for Under Armour to continue to OUTPERFORM.

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