Almost one year ago to the day, retail stock Under Armour Inc (NYSE:UAA) was just digging itself out of single-digit territory. Now, the shares are trading at roughly double that 12-month low of $10.14. At the same time, UAA's market cap sits at $10 billion, which is about half its all-time high. Beyond these psychologically significant milestones, UAA has flashed not one, but two signals that, if past is precedent, could mean the stock is ready to continue its steady climb.
For options traders looking for a weekly play, Under Armour stock could be prudent. Per Schaeffer's Senior Quantitative Analyst Rocky White, Under Armour is one of the best 25 S&P 500 Index (SPX) stocks to own the week of Labor Day. Looking at data from the last 10 years, UAA averages a tidy 3.3% return, with eight of the 10 positive. That's far and away the best of the 25 stocks, and the personal goods' sector sole champion.
As of this writing, UAA was trading at $22.67, so a move of similar magnitude would put the stock on the cusp of $24 by the end of next week, essentially filling that nasty 4.1% bear gap from Aug. 31. For longer-term investors, there's another bullish signal to consider. Under Armour also appeared on White's list of the 25 best-performing stocks on the SPX for September in the last decade. Under Armour's average return the last 10 years in September comes out to 2.6%, with 70% of the returns positive, once again besting the personal goods sector.
While those numbers may not pop off the page, Under Armour is the only stock to appear on both lists. And when you consider UAA's 14-Day Relative Strength Index (RSI) is approaching its lowest levels in nearly a month, there's reason to believe the retail stock can survive a period that's typically turbulent for apparel manufacturers; the sweet spot between back-to-school and holiday shopping.
There are more contrarian factors to consider. Of the 22 brokerages covering Under Armour, 11 rate the stock a "hold" or worse. And short sellers keep building their positions, with short interest up 5% in the two most recent reporting periods. The 15.09 million shares sold short account for 8% of UAA's total available float, making the stock an intriguing short-covering play, should some of these bearish bettors find themselves underwater.
Implied volatilities (IV) remain muted, which is a boon for potential options traders. The equity's 30-day at-the-money (ATM) IV of 35.6% is in the 2nd percentile of its annual range, pointing to relatively deflated volatility expectations being priced into near-term options.
Subscribers to Schaeffer's Chart of the Week received this commentary on Sunday, September 5.