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This Company isn’t LULU, but the Opportunity May be Better

This Company isn’t LULU, but the Opportunity May be Better

Lululemon Athletica Inc (LULU) broke out to a new 52-week high on Thursday as retail shined in an otherwise bearish day. While LULU is in the clouds, companies like Under Armour Inc (UAA) are still on the ground.

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  • UAA declined from $22.50 at the beginning of the year to near $7.50 in March and has failed to gain any ground ever since. By comparison, LULU lost over 50% of its value and has made it all back. However, if you look at Thursday’s performance, UAA ended over 5.3% higher compared to LULU’s 3.5%. I realize that it’s one day, but the potential for UAA to significantly outperform in the coming weeks to months as the economy continues to open up is big for under Armour.

    Since the earnings on May 11, 2020, the price of UAA has worked its way lower, but took a big step forward on Thursday. The move occurred on significant volume. As you look at the volume over the past couple weeks, it has remained fairly high as the price has failed to really gain any traction in either direction. This is a good indicator that the price has a chance of moving big once one side of the trade becomes exhausted. That’s why the bullish engulfing pattern yesterday was so significant. The range engulfed three high-volume neutral sessions. This may by the initiative it needs to move higher.

    The near-term target is $11 near the April 29 high.

    Option traders may want to consider buying a 17 JUL 20 $7.50 call for around $1.70. If the stock reaches $11 by expiration, the trade will make $1.80 for over a 100% ROR. If the stock moves more the trade has considerably more upside. Consider rolling the option to the $10 strike as it reaches that price.

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