Under Armour (UAA) and investor overreaction go hand in hand. When it was consistently breaking the 20% revenue growth mark, investors were paying a pricing multiple that far exceeded the valuation of the stock. And now, after a bevy of missteps and negative retail news, investors have been gripped with fear. They have ignored the long term value that the stock could create. So much, it is almost the perfect case for implementing Warren Buffett’s rule – "Be fearful when others are greedy, and be greedy when others are fearful."
Expect an outlook downgrade
After its last earnings in April, the stock fell every time a sporting goods retailer came out with a negative earnings outlook. And there were a barrage of them so the stock really got hammered.
It seems sensible that the management might try to capitalize on current lows in the stock to post an ultra-conservative outlook for the year. That way the company would be protected from market reaction if it stutters in the third and fourth quarter. And since market has already assumed the worst, an outlook downgrade may not necessarily drag the stock heavily on earnings day. However, if management holds its guidance, it is fair to expect a significant rally in the stock. Either way the downside looks limited.
