Under Armour Is No Slam Dunk for Short Sellers

(Bloomberg) -- Under Armour is the place for shorts -- both the kind you work out in and, well, short-sellers. 

During the second quarter, which ended Thursday, Under Armour's short interest almost doubled, making it the new favorite S&P 500 member to bet against. (In a short sale, traders sell borrowed stock in a wager that the price will drop and they can buy it back more cheaply for a profit.)

For years, GameStop, the video-game retailer, held the title of most-shorted stock in America's benchmark index. And for obvious reasons: GameStop, like many brick-and-mortar stores, is struggling in the Internet age, with gamers able to download and play without leaving their couches (although some do complain that file sizes are too large and slow to download). But in the past three months, some bears have backed away from the chain, as GameStop shares fell 16 percent. 

Instead, they're trying on Under Armour, a $17 billion maker of exercise apparel and sneakers. Under Armour's stock reached a high in September but has since lost a quarter of its value. Most notably, Sports Authority -- one of Under Armour's largest customers -- liquidated during the quarter after filing for bankruptcy protection in March. That forced Under Armour to cut its revenue and profit forecasts for the year. It had previously projected $507 million in operating income, but says it may now earn $445 million at most.

The recent spike in short interest means that traders see Under Armour shares dropping even further. That said, if you've been keeping up with Gadfly's Shelly Banjo, she's written about how Under Armour still has room to run and that investors should perhaps be looking at Nike, one of its biggest rivals, with a tad more skepticism. While more than 33 percent of Under Armour's shares outstanding are sold short, that compares with less than 1 percent for Nike. However, Nike's stock decline has outstripped Under Armour's this year.

Will Under Armour run with the bulls or get clawed by the bears? Despite slowing growth and recent setbacks, short-sellers may have been too hasty with this one.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.