You can toss the shares, along with the charts, for Under Armour (UAA) out the window. I'm joking about the shares -- but not about the charts. Holding this stock, short-term, is going to be a challenge. Today will determine my opinion for the next several weeks. An intraday reversal and a close above $20 will provide a clear reference point for hedging and stops. Simply put: today's low will become the wall that needs to hold back bears.
Since the split, Growth Seeker holding UAA's shares have been in some deep, well, the word rhymes with split, if you catch my drift. A double whammy hit the wires this morning with an earnings miss and the Chief Financial Officer resigning.
I have no doubt the CFO position will be filled by a quality candidate. Despite the miss, UAA is a quality company with an even higher-quality CEO. Several of my close friends, guys I've known for a couple of decades and who I trust implicitly, have interacted with Kevin Plank on both a personal and business level. They have nothing but great things to say about the man. These are experienced entrepreneurs and friends that work in both retail and finance. They have a good nose for sniffing out when someone is more concerned with share price than the company and the community around that company. This instills me with a longer-term confidence that Under Armour can right the ship and turn things around. A new CFO, a quality CFO, will be found. So to me, that's a short-term blip.
The revenue and earnings dip are of greater concern. Last year was a tough year on sporting goods. We watched several retailers go under. I believed the impact would be felt last quarter, but it appears to have finally caught up with UAA. I also anticipated this would take a few quarters to flush the channels and provide a reset, of sorts. UAA doesn't have quite the international reach that Nike (NKE) does, so expectations here are for a greater negative impact on the front half of 2017 for UAA.
Longer-term, this should provide an opportunity for patient investors. The huge haircut in valuation today brings UAA valuation closer in line with peers. The sub-$20 area knocks the P/E closer to 30, and once the channels are flushed, I expect a return to double-digit growth on both top and bottom line.
It's a starter buy for me, meaning I'm going in with a third of my full position, but this one will test patience. I expect whipsaws and won't be shocked to see a drawdown. Quality product with a quality CEO will draw me in nine times out of 10. This is one of those nine times.