UA Stock: Has the Window of Opportunity Already Closed?

Based on its recent performances in the chart, athletic apparel and footwear company Under Armour (UA) seemingly offers a compelling upside opportunity. For example, in the trailing month, UA stock gained nearly 12% of equity value. And in the trailing five sessions from the July 19 close, shares swung up almost 5%.

Fundamentally, two factors appear to buoy sentiment in UA stock. First and foremost, Under Armour announced late last year that Stephanie Linnartz will join the apparel specialist as President and CEO. While Linnartz has no retail experience, she was instrumental in leading the digital transformation of Marriot (MAR). During her time there, the hotel and resort operator launched its rewards program Bonvoy.

Given that the apparel industry is moving toward digital sales, many investors are hopeful that Linnartz’s acumen will help Under Armour forge a new path forward. Of course, the new leadership team has its work cut out for it, with UA stock still down about 13% since the beginning of this year. Nevertheless, it’s also possible that UA hit a bottom recently.

The other broader catalyst for the apparel firm are recent economic indicators that suggest inflation has been slowing. Following the devastation of the COVID-19 crisis, the pandemic of soaring prices clouded an otherwise remarkable social recovery. In response, the Federal Reserve began aggressively hiking the benchmark interest rate to cool price acceleration.

Throughout its rate hike campaign, policymakers wrestled with hot jobs reports. Finally, there appears to be some relief in sight and if so, lower prices – all other things being equal – bolster consumer sentiment. That should be good news for UA stock but some skepticism remains.

Options Traders Aren’t Waiting Around for UA Stock

Taking a narrower view, prospective investors may be tempted to jump aboard UA stock. After all, based on the latest rumblings in Barchart’s screener for unusual stock options volume, it doesn’t seem as if traders are waiting around for Under Armour to provide clearer reassurances. Instead, they’re diving in.

Following the close of the July 19 session, total volume for UA options reached 9,697 contracts against an open interest reading of 98,751. Further, the delta between the Wednesday session volume and the trailing one-month average metric came out to 667.17%.

Drilling down, call volume hit 9,505 contracts while put volume reached 192 contracts. This pairing yielded a put/call volume ratio of 0.02, on paper substantially favoring the bulls. Also, the put/call open interest ratio sits at 0.17, again another optimistic reading.

But perhaps the biggest vote of confidence materialized in Fintel’s screener for options flow. For the midweek session, traders bought calls – a classic bullish setup – with total volume amounting to 41,330 contracts.

Notably, implied volatility for UA stock has been steadily creeping up since mid-June, accelerating conspicuously from the July 12 session onward. Therefore, traders may be anticipating big price movements (in either direction).

Still, more conservative investors should exercise caution. For one thing, the Barchart Technical Opinion indicator rates UA stock a 24% weak sell. In addition, only one analyst presently covers Under Armour, who rated shares a hold. That’s hardly what you call a strong vote of confidence.

Even worse, Under Armour’s chart performance to rival Nike (NKE) is worrying. In the past five years, UA stock gave up nearly 63% of equity value. During the same period, NKE gained over 41%. It’s quite possible that the former entity missed its window of opportunity.

Under Armour Moves Against the Grain

Following the initial impact of the COVID-19 pandemic, the white-collar workforce immediately shifted into remote operations mode. From that point on, it became clear that the professional attire segment of the apparel industry would suffer. Unsurprisingly, comfort items such as pajamas rang up the cash registers. During this period, both Under Armour and Nike shares soared against their pandemic lows.

However, Nike managed to gain new ground. So, when the consumer economy suffered under the weight of skyrocketing inflation in 2022, Nike was falling from a very elevated baseline. On the other hand, Under Armour only briefly beat its January 2020 price point before tumbling badly last year.

Moving forward, bullish investors are looking forward to Linnartz’s strategic initiatives. However, society is now considering a shift back to pre-pandemic norms. For example, an increasing number of both public and private corporations have recalled their workers. Put another way, fashion demand may pivot back to traditional professional attire – something that doesn’t exactly align with Under Armour’s forte.

Unless another pandemic materializes that forces workers back home again, Under Armour would likely have to compete against stalwarts like Nike without any fortuitous tailwinds. It’s not impossible but investors should consider the risks before plowing their hard-earned money into UA stock.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.