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Under Armour – Opportunity on Pull Back?

Shares of Under Armour came under pressure Tuesday falling more than 20% after missing earnings and revenue forecasts.

The stock has hit new 52 week lows and investors might be wondering where it is heading. Under Armour has seen tremendous revenue growth of over 20% during the past 3 fiscals. This type of growth is expected to slow and investors have corrected the stock to more reasonable evaluations. Under Armour currently has a market cap around $4.7 billion and a forward price to earnings ratio just above 30.

Is this a good time to take a position in Under Armour? While the company has experienced premium pricing for some time, the recent stock price correction is likely to offer a buying opportunity for investors. Under Armour expects to see 11 to 12 percent revenue growth for 2017. The company is likely to remain one of the best growth stories in the retail sector even as the sector continues to face challenges. Near term margins and net income are expected to be affected as the company invests for longer term prospects.

There is also a possibility larger companies such as Nike or Adidas may want to acquire Under Amour as the company continues to experience growth and become a more dominant competitor in the sector.

Recently I initiated selling $20 strike Puts at 12.25% premium from the strike price, or $2.45. This offers an entry into Under Armour at $17.55 if the company trades below $20 by July. If the company trades above $20 the premium collected will result in a return of around 12%. These options were initiated on the non-voting class shares.

My price target for the company is $20-$22 in July.

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