Under Armour Short Sellers Bank $160M Off Accounting Probe News

A year that got off to a promising start hit its low point this year for Under Armour Inc UAA UA after the company cut its full-year guidance and disclosed that both the Securities and Exchange Commission and the Justice Department are investigating whether or not the company used misleading accounting practices.

Under Armour bulls took a beating on Monday when the stock tumbled more than 18% on the probe news, but Under Armour short sellers made a killing.

Huge Win For Shorts

Under Armour’s Class A and Class C shares have more than $1 billion in combined short interest, according to S3 Partners. That combined short position is the largest in the Apparel, Accessories & Luxury sub-industry group.

Under Armour’s Class A shares have roughly 38.7 million shares held short, or about 20.7% of the stock’s float. That $819.8 million short position gained more than $130 million on Monday, completely wiping out year-to-date losses and putting short sellers back into profitable territory for the year.

Under Armour’s Class C shares have 10.5 million shares held short, and short sellers pocketed an additional $30 million from their C shares on Monday.

Together, Class A and Class C short sellers made more than $160 million in profits on Monday.

S3 analyst Ihor Dusaniwsky said the investigation news will likely keep Under Armour as the most shorted stock among its peer group for a while.

“One would only expect this lead to widen if more negative headlines come about after the Federal investigation,” Dusaniwsky said Monday.

Benzinga’s Take

Where there’s smoke, there’s often fire. If two regulatory bodies are investigating a company, there’s a good chance that there’s some legitimate cause for concern. Regardless of the investigations’ findings, Under Armour will trade under a cloud of uncertainty for now, and its reputation among investors has already been damaged.

Class A shares traded around $17.39 at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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