Having rallied with the remainder of the market into the tip of the yr, the primary few weeks of 2024 have been markedly quiet for shares of Lululemon Athletica Inc (NASDAQ: LULU). To be honest, there had been some warning indicators. Groups from each Wells Fargo and Raymond James had downgraded their ranking on the athleisure large within the closing weeks of final yr on the again of what they noticed as an overheated rally that was beginning to look frothy.
Whereas they managed to land a beat on the headline numbers of their December earnings report, lighter-than-expected ahead steerage understandably spooked traders and appeared to justify the cautious downgrades. Nonetheless, the inventory was in a position to rally by way of the tip of the yr, however a 12% drop since then, whereas the S&P 500 index has gained 7%, is just not an excellent look.
Nonetheless, this divergence is not trying like it should proceed for much longer. Regardless of a number of makes an attempt previously week, the bears have been unable to take the inventory under the $450 stage, and with each failed try, the probability of an upward transfer grows. That is nonetheless the identical Lululemon that was hitting all-time highs lower than two months in the past, and it is the identical Lululemon that is rated as a Purchase by the overwhelming majority of analysts.
Excessive expectations
Utilizing MarketBeat’s analysis instruments, we will see that of 30 complete scores, an awesome 80% are within the Purchase camp. Prior to now month, the groups at KeyCorp, Truist Monetary, and Raymond James have all reiterated their bullish stances and the inventory carries a street-high worth goal of $610. From the place shares closed on Wednesday, that is pointing to an additional upside of some 30%, a determine that is solely gotten extra engaging in current weeks as shares have dipped.
The continued underperformance is a humorous one to know, particularly after the corporate walked again on December’s light-forward steerage by boosting its outlook for This fall. However the retail trade as a complete has been buying and selling softly in current weeks. Take Nike Inc (NYSE: NKE), for instance; at -15%, their shares are down practically double that of Lululemon’s for the reason that finish of December, whereas a number of key retail ETFs are additionally beginning the yr on the again foot.
The bears will level to Lululemon’s price-to-earnings (PE) ratio, which at 58 is effectively above the 45 it began final yr at. Contemplating the corporate’s income and earnings progress have not accelerated as a lot as anticipated since then, you possibly can perceive their level. Lululemon cannot actually afford something aside from stable upside beats in its earnings experiences this yr to justify the present share worth. However with administration already boosting ahead steerage, there’s each purpose to assume they’re going to come by way of on this.
Bullish sentiment
Contemplating client sentiment has swung effectively over to the bullish facet on the again of inflation cooling and hopes rising for a charge minimize, it’s important to be bullish on client shares like Lululemon, that are virtually thought of a luxurious merchandise. Certainly, with the bears working out of steam this week thus far, it is beginning to seem like Wall Road is pondering the identical factor. You possibly can’t assist however get a sense that we’re a stable entry alternative right here, particularly for these of us who missed out on the end-of-year run in December.
For these of us contemplating getting concerned, look ahead to Lululemon shares to proceed consolidating after January’s slide, with the sturdy potential for a catch-up play to develop within the coming weeks. Shares have shaped a stable base alongside the $460 stage, and with the inventory’s relative power index (RSI) nonetheless near oversold ranges, there is a ton of room to the upside ought to a rally begin.
