Betting Against This Stock Could Make You 300% Gains

Sometimes stock prices and business fundamentals don't line up. A company might be doing well, but its share price could soar to unjustifiably high levels. That's when savvy traders pounce, turning the market's error into triple-digit gains.

And that's exactly what Money Morning Special Situation Strategist Tim Melvin has for you today.

Our target for this bearish play is Under Armour Inc. (NYSE: UAA), a popular clothing and sports apparel brand. We see the brand everywhere from in TV commercials, to in favorite retail stores, and even on professional athletes.

But that's just the company. Melvin says that the stock price is too high.

This stock has the potential to create a 300% winning trade for savvy investors who know how to bet against it.

Here's why.

Why Under Armour Stock Could Sink

For starters, UAA sports a price/earnings ratio (P/E) based on its last 12 months of profits of 1,713.57! Think about what that means. For every dollar you spend to buy this stock, you get $0.00058 of earnings. Put another way, it would take almost 5 years to make your money back via the dividend.

Compare that to the trailing P/E of the S&P 500 at just 15.02, and you can see how irrational investors have been.

And even if we evaluate the stock based on next year's more optimistic earnings forecasts, we still get a P/E ratio of 46.15.

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It gets worse too. Melvin also points out that the company is very dependent on overseas sales. In light of Thursday's surprise rate cut by the European Central Bank, we know that overseas growth, in Europe in particular, is not very strong.

Further, 18% of Under Armour's products are sourced from China, adding a big element of risk should the current tariff battle escalate into a full trade war.

In short, this stock is flying too close to the sun, and there are some major catalysts that could send it tumbling back to earth.

Here's how to turn this situation into 300% profits...

How to Potentially Quadruple Your Money

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Here's what Tim Melvin recommends.

This is a simple purchase of a put option, which gives the holder the right, but not the obligation, to sell 100 shares of Under Armour stock at a fixed price at or before a certain date. The fixed price is called the strike price. And the date we're talking about is called the expiration date, because that's when the option must be closed out.

Specifically, he recommends buying the Jan. 17, 2020 Under Armour $25 put for $3.00 or less. Considering that Under Armour stock rallied with the broad market since this recommendation was first made, you can pick up this option for even less money. At Tuesday's close, its ask price was $2.25 per option.

If and when Under Armour stock starts to correct to a more reasonable valuation, especially if the tariff situation with China heats up, it is possible to see the stock fall all the way back to its December 2018 low of $16.52. It closed Tuesday at $27.27. If that happens, the put option should give you back more than four times your investment.

Of course, even if it doesn't fall all the way back down, it can still give you a triple-digit gain for your troubles.

But don't stop there.

Here's how to learn to find even more potentially lucrative trades...

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