Analyst: Lululemon Stock Facing an Inflection Point

There's room for optimism to unwind

Deputy Editor
Jan 24, 2023 at 10:11 AM
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Apparel retailer Lululemon Athletica Inc (NASDAQ:LULU) is down 2.8% at $307.23 this morning after Bernstein downgraded the shares. 

The analyst cut its rating on LULU to "underperform" from "market perform" and slashed its price target by $50 to $290, after warning of an impending reset. Specifically, Bernstein said that the company's growth is facing an inflection point amid a more cautious consumption backdrop.

Coming into today, the bulk of the brokerage bunch was optimistic, which leaves room for an unwinding of optimism. In fact, 19 of the 24 in coverage rated Lululemon stock a "buy" or better, while the average 12-month target price of $377.89 is a 19.6% premium to last night's close. 

Puts are picking up steam in the options pits. Following the bear note, roughly 2,942 bearish bets have already crossed the tape today -- double the intraday average volume. The most activity is taking place at the weekly 1/27 305-strike put, followed by the 292.50-strike put in the same series. 

Options look like a an ideal way to speculate on the equity's next move. This is per  LULU's Schaeffer's Volatility Index (SVI) of 34%, which stands higher than just 4% of annual readings, implying options are affordable at the moment.

On the charts, Lululemon stock's early December bear gap sent the shares back below their 30-day moving average, which is a trendline that switched between support and resistance multiple times over the last 12 months. Over the last nine months, LULU has shed 13.2%.

 

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