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Lululemon Dead Cat Bounce Looks To Continue

|Includes:The Gap, Inc. (GPS), LB, LULU, NKE, UA

Lululemon LULU $49.40 got hit hard in the last couple of months. On December 12, Shares dropped 15% after issuing soft guidance for Q4 after beating Q3 estimates on both top and bottom lines. Thinking the worst is over , A month after Q3 announcement , CEO John Currie revised Q4 EPS even lower as traffic data in January was very poor due to harsh winter conditions. Investor sentiment quickly turned sour for Lululemon which once was one of the favorite plays in the retail sector. The stock took another dive, at one point shares were down 25% since the revision trading at levels seen back in December 2011.

Some analysts saw this dip as a great buying opportunity. RBC Capital upgraded LULU to Outperform with a price target of $56 citing continued growth in 2014. Wells Fargo was also positive on the stock noting profit margins are sustainable mainly due to its expansion in Latin America. Today the stock got another boost, this time from Nomura issuing a Buy rating and price target at $70. The firm cites US store expansion, ecommerce and expansion into international markets as the main long-term growth catalysts. On the buy-side, Investment Adviser Capital Research Global Investors disclosed in a 13G filing dated January 31 2014 an 11% stake.

Based on its closing price the stock is trading 40% below its 52w highs and 16.5% below its consensus price target of $59.37. Comparing LULU to its competitors the stock looks relatively cheap at current levels.

  Lululemon UnderArmour Nike Gap L Brands
Price Target 59.37 103.42 81.41 45.31 60.54
Distance From PT -20.5 0.4 -10 -0.7 -11
Rating Hold Hold Outperform Hold Hold
P/E 25.86 71.97 25.29 15.07 19.52
Forward P/E 22.39 46.51 21.23 14.06 16.15
PEG 1.41 3.07 2.05 1.11 1.78
P/S 4.61 4.89 5.8 1.2 1.46
P/B 6.87 10.83 12.69 6.61  
ROE 34 17.4 25.7 42.5 -89.3
ROI 30 13.8 19.5 29.4 30.2
Gross Margin 53.7 48.7 44.3 39.7 41.7
Institutional Ownership 95.8 96.3 86.5 56.9 72.7
Short Float 19.32 81.25 0.92 2.65 2.87
Distance From 52W High -40.12 -1.85 -7.37 -8.44 -18.85
Click to enlarge

Looking at the daily chat, the stock has moved above the 10MA and 20MA, the MA's may cross creating another bullish signal. Current support is at $45 with resistance at $51, $55 which is also the 50MA as well as $59 which was the base created after the first profit warning initiated back in December. Volatility is currently low at 29.76%.

(click to enlarge)Click to enlarge

Stocks: GPS, UA, LULU, LB, NKE