Is LULU stock a buy?

Ahead of the company’s first quarter results, Citi analyst Paul Lejuez thinks the selloff in shares of Lululemon Athletica (Lululemon Athletica Stock Quote, Chart, News, Analysts, Financials NASDAQ:LULU) is overdone.

As reported in the Globe and Mail, the analyst May 29 maintained his “Buy” rating on LULU but cut his price target from $500.00 to $415.00.

“Short interest currently sits at 4 per cent of the float, up from 3 per cent three months ago,” Lejuez wrote. “Sentiment on LULU has turned significantly negative, even more so in recent weeks as third-party data have not suggested a pick-up in trends in the U.S. in May despite management pointing to an expected acceleration in comps beginning in May as new product hit stores. We believe the buyside bar is for flattish comps in the Americas (down low single digits in the U.S.) in 1Q and for that trend to continue into 2Q.”

The analyst says weakness in LULU may be overstated.

“During mgmt meetings we hosted on 4/19, management cited product execution issues as partially explaining weaker U.S. trends, and expected a May improvement as new products/color were introduced,” said. “While May may not have picked up significantly, we don’t think trends have gotten worse, and overall believe the Americas could grow modestly in F24. With international (particularly China) still very strong and flexibility in SG&A, we believe F24 EPS downside is limited.

In the U.S., he thinks the company might not have been full steam ahead, but says there is a lot to like

“Our view is there have been mis-steps in the product assortment this year (lack of storytelling/cohesion of the assortment, based on our checks), and against a backdrop of big sales increases over the past several years, LULU is feeling some pressure against tougher multi-year comparisons,” he wrote. “However, we do not see anything fundamentally wrong with the brand and believe LULU can grow modestly in the Americas this year (and potentially accelerate growth in F25).”