Under Armour Gaps Lower On Poor Earnings

Athletic apparel retailer Under Armour, Inc. (Ticker Symbol: UA) reported better than expected results on its most recent quarterly earnings and revenue release.  The Baltimore, Maryland-based company reported an earnings per share beat of .23 cents per share vs. Wall Street analysts’ expectations of .18 cents per share. Additionally, Under Armour reported a revenue beat coming in at $1.43 billion vs. Wall Street analysts’ expectations of $1.41 billion.

Under Armour’s North American sales were down for the quarter by roughly 4%, coming in at $1.01 billion.  Under Armour has been struggling to grow its sales domestically due to an overcrowded marketplace with Nike, Adidas, and Lululemon as its competition. It has been a rough quarter for Under Armour’s overall sales seeing a 1% drop in apparel sales, a whopping 12% drop in its footwear sales and its accessories sales falling by 2%.

Under Armour gave investors a minor update on its future revenue guidance for the remainder of fiscal 2019.  The company lowered its forecast and is now looking for revenue growth to increase approximately 2% vs. Wall Street analysts’ expectations of 3.1% and down from a prior range of 3% to 4%.

The above image is a chart of Under Armour’s stock since the start of 2019.  The stock started out in the first quarter trading positively.  After its first-quarter earnings release, the stock began trading in a horizontal channel.  Horizontal channels are usually viewed as areas of indecisiveness between buyers and sellers. The stock is a point at which supply and demand are relatively balanced and a stock’s price trades within a certain range. Under Armour traded between the levels of roughly $18.50 and $21.50 before breaking out from that range to the upside. The stock traded higher over the next three months and began to form a double top reversal pattern.

Some traders use what’s called a “measured move”, to try and project where the stock might go in the future based on breakouts from technical formations.  In Under Armour’s case, one would take the high prices from the top of the pattern (roughly $24.50) and the price of the neckline from the pattern (roughly $21.50) then subtract them to get the difference ($3.00). The difference is then projected from the neckline in the direction of the breakout to project the price of the measured move. Neckline – Difference = Measured Move.  In Under Armour’s case, the projected price target from the double top pattern was roughly $18.50, which it achieved shortly after breaking from the pattern.  Currently, the stock is trading below both its 100- and 200-day moving averages and is trading negatively for the year.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 13 analysts offering 12-month price targets, the average price target for Under Armour’s stock is $21.33. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $16.41.

Investors in the athletic apparel space should look forward to competitor Nike’s (Ticker Symbol: NKE) earnings release on December 22nd for fresh news within the sector.