Stock analysis

Is Under Armour Stock Approaching Oversold Levels?

Under Armour, Inc. (UAA) shares have fallen nearly 45% this year as the company deals with slowing demand for sporting and “ath-leisure” apparel as well as issues with its branding efforts in the NBA category. Management remains confident that it can restructure the business with a customer-led approach and focus on digital sales, but the market remains skeptical about its ability to execute given the lower guidance issued this year.

In late January, Under Armour stock fell almost 20% lower after fourth quarter results failed to meet expectations. Revenue increased 12% to $1.31 billion – falling $100 million short of consensus estimates – while earnings per share of 23 cents missed estimates by two cents per share. Since then, the stock has continued to slide despite improving performance, as retailers Foot Locker, Inc. (FL) and The Finish Line, Inc. (FINL) have lowered their guidance for the coming quarters. (See also: Nike, Under Armour Shares Slip on Adidas Pressure.)

From a technical standpoint, the stock experienced a brief rally in late August before failing to break through S2 resistance at $17.26 and reaching fresh lows. The positive news for Under Armour is that the relative strength index (RSI) is very oversold at 27.52, which suggests that the stock could see some near-term consolidation. The moving average convergence divergence (MACD) continues to trend lower, but the rate of decline appears to be moderating.

Traders should watch for some near-term consolidation at around $16.00 to $17.00. A breakout from S2 resistance levels at $17.26 could point to a longer-term recovery, but a failure to break out from these levels could lead to more downside ahead. The market may have already priced in a lot of the bad news surrounding the company, which means that traders should watch for a potential relief rally in the near term. (For more, see: Under Armour Stock Price Not Likely to Double.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.