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Under Armour just had one of its best days ever but ‘we wouldn’t touch it with a 10-foot pole,’ says trader

Trading Nation: Under Armour shares spike

Under Armour just had one of its best days ever, but one market watcher warns investors not to buy the hype.

"In Vegas this is what they call a sucker bet," Mark Tepper, president of Strategic Wealth Partners, told CNBC's "Trading Nation" on Tuesday. "We don't see very many positives. There's a lot of negatives."

Under Armour's class A shares added more than 17 percent on Tuesday in their best one-day performance since January 2016, after the company posted better-than-expected fourth-quarter sales.

Its results were not good, only "less bad," said Tepper. Take sales in North America, for example. Sales in that region make up the largest chunk of revenue, but have consistently declined in recent quarters. North American sales fell by 4.5 percent in the three months to December and the company anticipates a similar drop for 2018.

"The company also has quite a bit of debt and their interest costs are growing quickly," added Tepper. "At a forward P/E rate of 68, we wouldn't touch it with a 10-foot pole."

Its valuation is sharply higher than its industry peers. Nike trades at 26 times forward earnings, Skechers at 18 times and Hanesbrands at 11 times. The XLY Consumer Discretionary ETF has a price-earnings ratio of 20 times forward earnings, slightly above the S&P 500's level of 17 times.

While it may not be a buy for Tepper, Matt Maley, equity strategist at Miller Tabak, advises not to short it, either.

"Even though fundamentally it may not be the best story in the world, I wouldn't want to short it here either because it could attract momentum money that it hasn't seen in a couple of years," Maley told "Trading Nation" on Tuesday.

Maley's charts show its stock has potential. Over the past year, bad news has triggered a big gap down for the shares – Tuesday's rally changed that trend with a big gap higher. Also, despite falling in January while the rest of the market rose, Under Armour shares did mark a "higher low," he said.

Under Armour's gains on Tuesday pushed its shares into positive territory for the year. Its stock is up 16 percent for 2018 and is one of the S&P 500's top 15 performers in the year to date. The sports apparel brand posted its worst annual performance ever in 2017.

Investors grew more bullish on Under Armour after quarterly growth in international sales made up for domestic weakness. Overall revenue increased 4.6 percent to $1.37 billion, beating expectations by $60 million. The bottom line was level with estimates. Sales in men's training and global footwear drove apparel revenue's 2 percent growth, while footwear revenue increased 9 percent.

It joins the scores of S&P 500 companies that have already reported for the fourth quarter. Of the two-thirds in the index that have released earnings, 78 percent have exceeded estimates on the bottom line and 79 percent on the top, according to Thomson Reuters. Consumer discretionary companies have reported 9 percent blended earnings growth.

Under Armour's gains Tuesday put its stock even further above an average price target on Wall Street. Analysts surveyed by FactSet have an average price target of $13.46, implying 19 percent downside from Tuesday's levels. Jefferies is the biggest bull with a $24 price target and Canaccord the biggest bear at $8.