Lululemon Athletica Inc. (LULU) Shows Short-Term Volatility but Strong Long-Term Potential, 1 month ago

lululemon Technical Analysis

Lululemon Athletica Inc. (NASDAQ: LULU) closed at $308.27 on June 5, 2024, showing a mild increase of 0.49%. The stock has recently traded in a range between $301.05 and $308.76, indicating slight consolidation. The Relative Strength Index (RSI) of 27 suggests that the stock is currently oversold.

Despite being oversold, LULU's technical indicators show bearish trends. The 50-day and 200-day moving averages are significantly higher at $344.93 and $413.29 respectively, reflecting a downward trend over the longer term. The MACD indicates further negative momentum at -18.85, while the Average True Range (ATR) of 2.96 hints at moderate daily price volatility.

Crucial support is identified at $299.74, while immediate resistance is pegged at $311.99. Given the oversold status and significant bearish indicators, short-term movements might remain volatile around these levels.

Fundamental Analysis

Lululemon posted intriguing Q1 earnings, driven by strong international market momentum and innovative product offerings. Recent reports highlight an upbeat full-year earnings forecast and an enhanced stock buyback program, which has propelled after-market rallying by as much as 13.6%. Numerous analysts have adjusted their price targets positively after the earnings announcement, with a median target price of $440, suggesting considerable upside from current levels.

LULU's fundamental indicators are mixed but promising. The company maintains a Price-to-Earnings (PE) ratio of 26.16, indicative of moderate valuation relative to earnings. The EPS stands robust at $12.45, showcasing strong earning potential. Its current market cap is approximately $39.34 billion.

Critically, the Discounted Cash Flow (DCF) valuation stands at $361.61, indicating that the stock may be undervalued at present levels. The raised EPS guidance and strategic buyback program underscore management's confidence and commitment to shareholder value.

lululemon Short-Term Performance Predictions

For the next trading day on June 6, 2024, LULU is poised to open strongly, given the positive after-market movements and improved earnings outlook. The stock is likely to test its immediate resistance level of $311.99, potentially breaking higher if the bullish sentiment persists.

Over the course of the following week, LULU's performance is anticipated to remain favorable, largely influenced by the optimistic earnings guidance and broader market conditions. The stock might experience elevated trading activity and could challenge higher resistance levels around $325-$330.

Intrinsic Value and Long-Term Investment Potential

LULU's intrinsic value, as indicated by the DCF analysis at $361.61, reveals a significant upside compared to its current price of $308.27. This valuation, combined with the company's robust earnings forecasts and strategic initiatives, suggest positive long-term prospects.

Management's commitment to optimizing product assortments, expanding internationally, and tackling new growth markets like China enhances its long-term investment appeal. However, challenges in core markets and stiff competition need to be monitored closely.

Overall Evaluation: Buy Candidate

LULU is categorized as a 'Buy' candidate based on its favorable long-term prospects, current undervaluation by DCF metrics, strong earnings performance, and positive market momentum post-earnings announcement. The consensus target price of $440 further supports this outlook. The stock’s oversold technical status, combined with supportive news on earnings and buybacks, enhances its appeal for investors looking for long-term growth.

It's essential to continually monitor LULU's execution on its strategic initiatives and market conditions to reassess its investment thesis accordingly.

Check full lululemon forecast and analysis here.