Although stock market watchers in the Textile – Apparel sector are likely already familiar with Lululemon Athletica Inc. (NASDAQ: LULU), they may be less sure about whether or not the firm is a smart investment for individuals seeking growth or if they would be better off with a more established sportswear company like Nike (NYSE: NKE).
Ever since Lululemon’s management team reduced their prediction for the company’s profit margin in early January, the company’s stock price has been under pressure. The athleisure guru is feeling the pinch of rising costs and a tightening supply chain just as customers are becoming more frugal.
On the other hand, Lululemon continues to forecast a robust profitability that will easily exceed that of Nike. The fact that 41% of total income was generated from direct e-commerce sales in Q3 is beneficial to the yoga apparel specialist.
LULU chart analysis
Currently, Lululemon is changing hands at $320.36 after closing on Friday, 17 −$1.47 (0.46%). Reduced volatility and consolidation have been observed alongside considerably lower volume in the last couple of days.
In the last month, LULU has been trading in the $301.80 – $328.42 range, which is quite wide. It is currently trading in the middle of this range where prices have been consolidating recently, this may present a good entry opportunity, but some resistance may be present above.
LULU does show a decent setup pattern, and above the $320.37 resistance zone could be a good spot for those looking for an entry point. A resistance zone ranging from $320.37 to $329.26 is formed by a combination of multiple trend lines. There is a support zone below the current price at $320.32, a Stop Loss order could be placed below this zone, with support ranging from $314.43 to $320.32.
Technical analysis
Based on 32 market analysts of ratings of Lululemon, the stock has been given a consensus ‘buy’ rating. Notably, 19 experts advocate a ‘strong buy,’ and two a ‘buy.’ Elsewhere, eight recommend ‘hold,’ and there have opted for a ‘sell’ and ‘strong sell.’
Taking into consideration the 28 Wall Street expert evaluations for LULU over the last three months, the average price forecast for the next year is $381.24; the target indicates a 19% upside from its current price. Interestingly, the highest price target over the next year is $488.
The fact that the chain increased its sales estimate in January and raised its projections for net profit demonstrates that the gross margin drop is neither an indication of collapsing demand nor of difficulty in passing along higher pricing to customers. However, the primary issue is that the corporation is now coping with a temporary increase in cost.
Lululemon’s long-term growth prospects are excellent and include expanding into new markets, customer segments, and product lines.
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