(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Under Armour Inc. (UAA) shares have soared by more than 43% in 2018, outpacing the S&P 500’s rise of only 8%. But shares of the athletic apparel maker may be due to fall by about 10% in the coming weeks based on technical analysis. However, any pullback may be short term as the longer-term forecasts for the business improve.
The company delivered better-than-expected second-quarter results beating on both the top and bottom lines at the end of July. Earnings came in almost 4% better than estimates, while revenue beat by more than 2%. But tepid third-quarter guidance has weighed on the stock, resulting in analysts cutting their forecast for the coming quarter.
^SPX data by YCharts
The technical chart suggests the stock may be due to fall by 10% to almost $18.70 from its current price around $20.60. Shares have been trending lower since the middle of June when the stock peaked at roughly $24.70. That downtrend is now serving as technical resistance and is pushing the price lower. Should the price continue to decline, it is likely to do so until reaching technical support at $18.70.
The relative strength index (RSI) has been falling since reaching an overbought level at the start of June around 80. When the RSI rises to 70 or higher, a stock is overbought. The declining RSI suggests bullish momentum is leaving the stock. With the reading currently at 50, the RSI would still need to fall further—to 30—to be oversold.
Lowering Forecast for Coming Quarter
Since reporting second-quarter results, analysts have cut their earnings forecast for the coming third quarter. Earnings are forecast to decline by more than 42% versus the same period a year ago. Forecasts now see the company earning $0.12 per share down from prior views of $0.24. Revenue forecasts fall to $1.41 billion from previous estimates of $1.45 billion. Full-year estimates fall as well, with earnings forecast to fall by 12% in 2018 to $0.17 from a prior estimate of $0.18.
Upping Longer-Term Estimates
The good news is that analysts are looking for earnings to start growing in 2019, rising by 91% to $0.32, and that is better than the previous forecast for earnings of $0.31. The estimates for 2020 are better still, expected to rise by 47% to $0.47, up from the previous forecast of $0.43.
UAA EPS Estimates for Current Fiscal Year data by YCharts
As investors continue to weigh the short-term business outlook, shares may continue to fall. But should the long-term forecasts prove to be correct, then any pullback in the stock may not last for very long.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company’s actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer’s bio and his portfolio’s holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.
Source: Read Full Article