Under Armour: Overvalued and vulnerable

In addition, Under Armour has been growing its product line in quantity. While the company has been very successful in the sweat-absorbing clothing market, it is expanding into other product lines, such as skiing jackets, fishing apparel, and sports cleats. While I'm sure the its products are high quality, the company won't be able to maintain its very high margins in these new product lines because the company won't be perceived as the original or highest quality product in the field..

While I do find the company's stock to be very vulnerable, I wouldn't recommend going short the stock directly because the float is so heavily shorted; shares are both hard and expensive to borrow. For Under Armour I'd go as far out as possible for the options contracts - January of 2008 - and pick a contract that makes sense to you.

That being said, I think putting in a "hedge" prior to the quarterly report would make sense for more advanced traders. Although the company did miss last quarter's estimates and many consider the company to be over-promising Wall Street., the potential for a very good quarter on July 31 is there. Considering the fact that 33% of the float is short, if the company does in fact beat numbers the stock will fly.

But there is also a lot of momentum money in the stock. If the company misses numbers, these investors are going to jump ship and the share price will plummet.I don't know exactly when, but I think Under Armour is due for a rather significant drop in its share price.