Lululemon stock continues to underperform the broader market as the company’s and industry’s challenges continue. LULU is down by 44% this year and by 71% in the last five years, a dramatic reversal for a company that was once one of the most popular among retail and institutional investors.
LULU’s retreat has coincided with that of other top companies in the industry. Nike stockhas dropped by 50% in the last 12 months and by 77% in the last five. In Germany, Adidas has fallen by 50% in the last five years, while On Holding is down by 33% in the same period.
Lululemon Athletica is facing pressure in key areas
Lululemon, a company whose business boomed during the pandemic, has done well in the past few years as its growth trajectory has stalled.
It has moved from having double-digit growth to single digits. In 2023, the company’s revenue growth was nearly 30%, a figure that dropped to 4.8% last year.
The most recent results showed that its net revenue rose by just 4% in the first quarter to $2.5 billion or 2% on a constant-dollar basis.
Most notably, its key markets are no longer doing well. Its Americas revenue dropped by 3%, a notable development since it is its most profitable.
Its international segment’s revenue jumped by 22% in the quarter, with its comparable sales rising by 13%. While these growth metrics are good, they are much lower than where they were a few quarters ago. Mainland China’s revenue has also slowed drastically in the past few months.
The company’s profits have also plunged. Its net income dropped to $195 million in the first quarter from $314 million in the same period last year.
Lululemon’s growth is expected to be minimal in the coming years. The average estimate among analysts is that its second-quarter revenue will be $2.46 billion, down by 2.55% from a year earlier. For the year, its revenue is expected to drop by 0.54% to $11.04 billion, followed by a modest growth next year to $11.34 billion.
Therefore, the company’s valuation has become a bargain. Its forward price-to-earnings ratio dropped to 10.5, lower than the consumer discretionary median of 17, and the five-year average of 28. Despite its cheap valuation, there is a possibility that it may be a value trap. Unless the company demonstrates a clear turnaround strategy, the stock will likely continue falling.
Lululemon stock technical analysis
LULU stock chart | Source: TradingView
The weekly chart shows that the LULU stock has been in a strong sell-off for a while. It has slumped below the important support level of $159, its lowest level in September and November last year.
Lululemon stock has slumped below the 50-week Exponential Moving Average (EMA), a sign that bears remain in control. The stock has formed a bearish flag pattern and is now in the horizontal channel.
Therefore, the stock will likely continue falling, potentially to the key support level of $100. A move below that support will point to further downside towards $80.
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