The first half of 2024 has been rough for Lululemon Athletica (LULU), as the stock has fallen 40% in the past 6 months or so. 

However, the company delivered first-quarter earnings results that helped buoy the stock a bit – it regained 12% in the past week and is up 9% so far in pre-market trading Thursday morning. 

The concern that has been sending shares lower is dwindling sales growth. We can see hints of that in the latest earnings update, in which the company posted 7% growth year-over-year in comparable sales. This narrowly outpaced the 6.3% that analysts were expecting. 11% growth in net income also exceeded the Wall Street consensus.

But, just in looking at the Americas, sales growth was flat. Analysts were expecting at least 1% growth. The trend over the years has been double-digit sales growth in this region, suggesting that the company is losing its footing. CEO Calvin McDonald says that there is really nothing to worry about in an attempt to dispel negative sentiment. 

He says that sales would have been higher had the company not been held back by inventory issues. Lululemon’s viral belt bag has been a smash hit among the younger demographic, sending newer styles out of stock and leaving room on the table for more sales growth. The company also could have capitalized had it offered more colors in leggings.

There have been rumblings that Lululemon is becoming disconnected from what made it a successful brand. It’s no longer the niche yoga brand it once was – today, the company is trying to become a more general sportswear and athleisure brand, offering everything from leggings and shorts to shoes, bags, golf apparel, and more.

Meanwhile, smaller and more focused brands are stealing market share. Companies like Alo Yoga and Vuori are taking the place Lululemon once held, and together, they now make up about 38% of Lululemon’s market size.

It’s worth noting that Lululemon is still expecting to see an 11-12% increase in revenue this year as it continues to perform well on the worldwide stage, making up for the disappointing performance here in North and South America.

However, we’ve taken a look at LULU in the VectorVest stock analysis software and found a few concerning indications that it may be time to SELL this stock. Here’s what you need to know…

LULU Still Has Excellent Upside Potential and Very Good Safety, But Poor Timing is Holding it Back

VectorVest is a proprietary stock rating system designed to save you time and stress while empowering you to win more trades. It gives you all the insights you need to make calculated, emotionless decisions in 3 simple ratings: relative value (RV), relative safety (RS), and relative timing (RT).

Each rating sits on a scale of 0.00-2.00 with 1.00 being the average, making interpretation quick and easy. Better yet, you’re given a clear buy, sell, or hold recommendation for any given stock at any given time based on its overall VST rating. As for LULU, here’s what we found:

  • Excellent Upside Potential: The RV rating is a far superior indicator to the typical comparison of price to value alone. It compares a stock’s long-term price appreciation potential (forecasted 3 years out), AAA corporate bond rates, and risk. LULU has an excellent RV rating of 1.47. Moreover, the stock is undervalued with a current value of $419.45/share.
  • Very Good Safety: The RS rating is a risk indicator computed from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. LULU has a very good RS rating of 1.28.
  • Poor Timing: The RT rating is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year. This is where the issue lies, as LULU has a poor RT rating of 0.56 reflecting the negative price trend pushing the stock lower and lower.

The overall VST rating of 1.13 is good for LULU, but the stock is still rated a SELL for the time being. Take a moment to check out this free stock analysis and learn more about this situation if you’re currently invested in LULU and eliminate human error, emotion, and guesswork from your investment strategy for good!

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VectorVest advocates buying safe, undervalued stocks, rising in price. LULU has plummeted 40% through 2024 thus far as it continues to see dwindling sales growth. The stock itself has excellent upside potential and very good safety, but the timing is poor right now.

Before you invest, check VectorVest! Click here to ANALYZE ANY STOCK FREE and see our system in action!