Prior to Under Armour, Inc.'s (UA: sentiment, chart, options) dance in the earnings spotlight this morning, options traders were sprinting toward the bears' camp. Yesterday, the athletic-gear maker saw almost 9,500 puts change hands – more than quintupling its average daily volume of fewer than 1,750 contracts.
The most popular pessimistic position was the February 17.50 put, which saw more than 2,800 contracts cross the tape on open interest of roughly 1,000. Meanwhile, the stock's February 15 put traded almost 2,750 contracts on open interest of only 558.
In today's trading, bearish bets are also more popular than their bullish counterparts. So far today, UA's February 20 put has seen more than 1,000 contracts change hands. This strike is currently home to peak put open interest in the front-month series, with nearly 3,000 contracts in residence.
Further underscoring the skepticism among options speculators is the security's ascending Schaeffer's put/call open interest ratio (SOIR). After trending higher in recent weeks, the equity's SOIR now rests at an annual pessimistic peak of 1.70, indicating that puts outnumber their call rivals among options slated to expire within 3 months.
So, did the escalating cynicism ahead of earnings pay off for these disbelievers? Not quite, as the Baltimore-based company's fourth-quarter figures fell in line with expectations.
The firm announced a quarterly profit of $8.3 million, or 17 cents per share, matching analysts' predictions. However, the sports concern's earnings were 51% lower than the same period a year ago, hurt by a stronger dollar, general economic woes, and higher expenses. For 2008, profit backpedaled 27% to $38.2 million, or 77 cents per share, from $56 million, or $1.05 per share, a year earlier.
Meanwhile, sales rose 3% to $179.3 million in the fourth quarter, virtually matching the Street's estimates of $179.7 million in revenue. For the year, UA saw a 20% increase in sales, with revenue rising to $725.2 million from $606.6 million in 2007.
As a result of the virtual first down on the earnings gridiron (OK, so maybe it was more like an 8-yard gain), the shares of UA have defied broad-market woes today. At last check, the Dow Jones Industrial Average (DJIA) was flirting with a 212-point loss; in comparison, UA has inched about 20 cents, or nearly 1%, higher, dawdling near the 19.65 region.
However, from a longer-term perspective, the stock still has a way to go before being christened a home-run hitter on the charts. Since peaking just shy of the 70 level in August 2007, the equity has tumbled more than 70%, marking a series of lower highs and lows. The shares of UA are now attempting to find a foothold in the 18-to-20 region – a breach of potential support in this area would place the stock in all-time low territory.
Nevertheless, should the shares of UA capitalize on today's earnings report by springboarding off support, there is plenty of pessimism waiting to unwind and fuel the stock higher. The equity's average 12-month price target stands at $20.22, according to Thomson Financial, less than half a point from today's intraday peak. A Wilt Chamberlain-esque rebound on the charts could inspire a wave of price-target boosts.
Furthermore, short interest on the security represents 7.36 million shares, or nearly 22% of UA's total available float. Should the stock extend today's gains into a notable turnaround, the shorts could get spooked. At the equity's average daily trading volume, it would take 9 sessions for all of these bearish bets to unwind – providing ample fuel for a short-covering rally.
In conclusion, it comes down to one question: do the shares of UA have what it takes to exploit today's earnings numbers into something substantial on the charts? If so, an unraveling of skepticism – whether in the options pits, among the brokerage bunch, or in the short-selling arena – could turn UA into the 1976 Cincinnati Reds, as opposed to the 2008 Cincinnati Bengals.
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