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Over the course of the last three years, you would be hard pressed to find a stock that has performed as well as Under Armour (NYSE: UA). The athletic footwear and apparel manufacturer saw its stock more than quadruple from late 2012 to its high this past summer. Since that high in September the stock has been pulling back, and I believe it is providing investors with the chance to buy the stock.
Looking at the daily chart, we see that the stock just moved out of oversold territory. This is only the fourth time in the last year that both the stochastic readings and RSI have both been in oversold territory. In August, the last time it happened, the stock rallied from below $85 a share to the high of $105.89 in September.
While the daily chart shows a short-term buying opportunity, the weekly chart shows the strong rally Under Armour stock has experienced in the last few years. It also shows how a trend channel has dictated trading over the last year and a half.
The first thing that jumped out at me was how the stock hasn’t closed below its 52-week moving average since March 2013, but it just bounced off that moving average earlier this week. We also see that the weekly stochastic readings and the 10-week RSI are at or close to levels where the stock has reversed from any pullbacks over the last couple of years.
Despite the incredible rally in Under Armour, the sentiment toward the stock is still somewhat bearish. The short interest ratio currently sits at 5.08 and of the 32 analysts covering the stock, 13 have it rated as a “hold” and the other 19 have it rated as a “buy.” While the analyst ratings are more of a neutral reading, seeing the short interest ratio above 5.0 was a surprise to me and it suggests that the stock still has room to move on the upside.
It is rare to find a stock that has performed as well as Under Armour when the sentiment is neutral or even slightly bearish. I even looked at the monthly Under Armour chart and the stock is up over 30-fold since the bear market ended in the spring of 2009. Normally when we see this kind of incredible rally, the sentiment is over-the-top bullish, with nearly all analysts rating the stock a buy and a short interest ratio below 2.0 or even below 1.0 in some cases.
Whether you are a short-term trader or a long-term investor, Under Armour looks like a buy right now. I would buy it at its current level, and for short-term traders a target of $105 should be appropriate.
If you are a long-term investor, I would look to hold the stock as long as it is above its 52-week moving average. I also wouldn’t be surprised to see the stock split if it goes back above the $100 mark and climbs to $120 or higher.
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