I've heard of volatility, but this is ridiculous.

Over just the past few days, shares of high-tech sportswear-weaver Under Armour (NYSE: UA) have surged nearly 30% -- almost enough to make up the ground lost when the firm "pre-announced" disappointing Q4 earnings two weeks ago. So let me get this straight: The same investors who got spooked two weeks ago by the numbers UA said it plans to reveal tomorrow have decided to... buy the stock right before the company reports those scary numbers?

Seems sanity is not a prerequisite for investing in Under Armour. The only requirements are that you scare easily, and forget quickly.

What analysts say:

  • Buy, sell, or waffle? Fifteen analysts follow Under Armour. Nine of them rate the stock a buy, four more a hold, and two say "sell."
  • Revenues. On average, the analysts expect to see Q4 sales rise 28% to $173.5 million.
  • Earnings. Profits are predicted to rise 33% to $0.32 per share.

What management says:
So what news, exactly, set this stock to convulsing? It wasn't this quarter's estimates. UA says it will close out this year with a 40% sales gain to $605 million, and $173 million in Q4 in particular. Profits for the year will be either $1.03 or $1.04.

No, the problem is with what UA promised for next year; more specifically, for the first half, in which UA expects to earn less than a nickel. (Wall Street had been predicting nearly $0.40 for the first six months of 2008.)

What management does:
No problems here at all. Operating margins now top Nike (NYSE: NKE), and far surpass footwear specialists K-Swiss (Nasdaq: KSWS), Skechers (NYSE: SKX), Timberland (NYSE: TBL), and Wolverine (NYSE: WWW), and lag only Columbia Sportswear (Nasdaq: COLM).

Margins

6/06

9/06

12/06

3/07

6/07

9/07

Gross

49.2%

49.6%

50.1%

49.6%

49.8%

49.8%

Operating

13.0%

13.6%

13.3%

12.7%

12.7%

13.4%

Net

7.8%

8.9%

9.1%

8.6%

8.6%

8.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
So back on Jan. 18, post-pre-earnings announcement, I wrote in this space that UA was a "buy."

Well, on the one hand, I guess the stock's quick surge shows I was right that UA was a buy back then. But on the other hand, looking at where the shares trade today, I'm going to hedge my bets now and say that this investment is no longer a lock. Working off the same numbers I used to argue in UA's favor two weeks ago, UA seems to be telling us that it will earn $1.30 per share (perhaps more) this year, and then proceed to grow that number at 20% to 25% per year over the long term.

To me, that looks like about a 28 forward P/E, and PEG ratio of somewhere between 1.1 and 1.4. Mind you, $1.30 is the least I think UA will earn this year. If it earns more, the shares could still be worth owning. All I'm saying now is that this is no longer "money in the bank." Tread carefully.

Related Foolishness:

David Gardner recommended Under Armour in his Motley Fool Rule Breakers newsletter. Grab yourself a free trial to the newsletter, and find out the team's latest thoughts on the company.

Fool contributor Rich Smith does not own shares of any company named above. Columbia Sportswear is a Motley Fool Hidden Gems recommendation. The Motley Fool has a disclosure policy.