7. Lululemon Athletica Inc. (NASDAQ:LULU)
Number of Hedge Fund Investors: 45
Jim Cramer discusses Lululemon Athletica Inc. (NASDAQ:LULU)’s recent performance, noting that the stock has fallen significantly from its highs last December, down by half. After Lululemon Athletica Inc. (NASDAQ:LULU)’s mixed earnings report a little over a week ago, which showed no real signs of improvement, the stock barely moved and has since declined further by more than 2% amid a weaker market. While Cramer is hopeful for Lululemon Athletica Inc. (NASDAQ:LULU)’s turnaround, he is not ready to endorse the stock as a buy at this time.
“Now, let’s talk about Lululemon. Going into last week’s earnings report, the stock had already been cut in half from its highs last December. When the company posted its numbers a little over a week ago, the results were mixed at best, with no real signs of a turnaround. The stock barely reacted to the numbers, but as the market weakened this week, Lululemon stock declined more than 2%.
The truly sad part is that, until late last year, Lululemon was one of the greatest growth stories of the past 15 years. You could have bought it for single digits during the Great Recession. Now, it’s at $253 and change, which is an incredible long-term move. But it’s a lot less impressive when you remember Lululemon was a $500+ stock about nine months ago.
So, is there any hope for a comeback? Given the company’s historic track record, I think we owe it to ourselves to take a look. Unfortunately, while there are some positives, they’re not enough to make me a believer again. Not yet. And you need to be a believer if you’re going to recommend a stock that’s been cut in half in less than a year. I just can’t do that, for several reasons.
You could argue that Lululemon is worth buying purely on the basis of valuation. It sells for roughly 18 times the midpoint of this year’s earnings estimates, and historically, the stock has sold for a whopping 43 times earnings over the past five years. But to make an argument based on valuation, you need to believe there won’t be any more cuts to the numbers. I can’t say that with confidence when it comes to Lululemon — at least not yet, not with this much competition.
Here’s the bottom line: I’m rooting for Lululemon to make a comeback, absolutely. But with so much lower-priced competition, I’m simply not ready to stick my neck out on this one. As much as I think Calvin McDonald is a total pro, this is still a “show-me” story.”
In its Q2 2024 earnings report, Lululemon Athletica Inc. (NASDAQ:LULU) reported $2.4 billion in revenue, a 7% increase from the previous year, but this was below analyst expectations, especially in the Americas where sales only grew by 1%. Despite this, Lululemon Athletica Inc. (NASDAQ:LULU) remains highly profitable, with earnings per share (EPS) projected between $2.68 and $2.73 for Q3 2024, and an annual EPS forecast of $13.95 to $14.15.
Lululemon Athletica Inc. (NASDAQ:LULU)’s growth strategy, called “Power of Three ×2,” aims to double its revenue from men’s products, e-commerce, and international sales by 2026, increasing from $6.25 billion in 2021 to $12.5 billion. Lululemon Athletica Inc. (NASDAQ:LULU) is in a strong financial position with $1.6 billion in cash and reduced inventory, setting the stage for continued expansion despite current challenges. Short-term issues, like the disappointing Breeze through leggings launch and increased competition from brands such as Alo Yoga and Vuori, have affected recent performance.
However, Lululemon Athletica Inc. (NASDAQ:LULU)’s focus on innovation and global growth suggests a strong long-term potential. Analysts have set an average price target of around $354.95, indicating a nearly 40% potential upside from current levels, making it an attractive investment for those with a long-term view.
Middle Coast Investing stated the following regarding Lululemon Athletica Inc. (NASDAQ:LULU) in its Q2 2024 investor letter:
“I mentioned last quarter and higher above that I like buying quality stocks on sale. Lululemon Athletica Inc. (NASDAQ:LULU), the 2nd worst performer in the S&P 500 this year, qualifies. I published a full thesis on the stock before its most recent earnings, but the basics: the yoga pants and clothing company has had an amazing post pandemic run that is approaching its end.
Its growth in the U.S. is slow/non-existent at the moment, but it is growing very fast in China and Europe. I think that international growth is likely to endure, and that its U.S. slowness is likely to be temporary. Lululemon shares are not ‘cheap’, but they are on sale for an average price, and I think the company will grow faster than average over the next five years. I would be wrong if Lululemon is a fad gone bust, or faces a huge post-pandemic hangover as people get used to leaving the house more. We’ll see.”
