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Who says momentum investing is dead?
The market may be in pull-back mode, but that doesn’t mean the fast money has quit working.
Today the momentum investors are flocking to Under Armour (NYSE: UA). Shares are up an impressive 22% today after the company released earnings that beat expectations.
The sport apparel company reported a profit of 59 cents per share in the fourth quarter. Analysts were looking for a profit of 53 cents per share. Revenues also exceeded expectations, coming in at $683 million versus an average estimate of $620 million.
The company blew out expectations, sidestepping a difficult retail environment that was heavy on discounts and promotion. Under Armour instead saw a 36% year-over-year increase in direct to consumer sales.
The outlook for 2014 was just as impressive. Under Armour sees revenue for the current year in a range of $2.84 billion to $2.87 billion. The current estimate is for sales to come in at $2.77 billion for 2014.
What’s there for a momentum investor not to like?
Like most stocks, January had not been kind to Under Armour stock. Shares fell from a peak of near $89 to a low of $82. Interestingly that sell-off happened in the middle of the month, not during the recent pull-back in the overall market.
Perhaps that should have been a clue to what was about to transpire.
By comparison, rival Nike (NYSE: NKE) shares began falling at the start of January and continued right up until Thursday’s recovery rally. Its shares have dropped from $79 per share to below $72 per share.
Analysts expect profits to grow at Under Armour by 24% in 2014. Even before releasing fourth-quarter results, that growth was attracting investors as shares traded for 48 times 2014 estimated earnings.
With that valuation and a negative stock market environment, one might have expected Under Armour stock to have a tough time appreciating no matter what the results.
Just when the market has you worried, a stock like Under Armour crushes earnings and shares go through the roof.
Are you kidding me? A 22% gain in one day of trading?
I thought this was supposed to be the start of a correction or worse in the market.
Would you buy the stock now?
Despite the impressive run, I would have a hard time paying the now 58 times 2014 estimated earnings you would have to fork over to own shares.
As impressive as the operating results were, a stock at these levels can fall hard and fall fast. I’d stay away from this one, especially now.
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