LuLulemon is ready to bounce back from “massive pullback”, investor says

FSA Valuation Service president Matt Kacur said on BNN Bloomberg’s Market Call on Jan. 8 that Lululemon Athletica (Lululemon Athletica Stock Quote, Chart, News, Analysts, Financials NASDAQ:LULU) is beginning to look attractive again after a sharp multi-year pullback, despite intensifying competition in the athletic apparel space.

Kacur said the core of his thesis rests on valuation, noting that the stock has fallen dramatically from prior highs even as the underlying business continues to grow.

“We’re talking a massive pullback here in the last two years,” Kacur said. “I think this touched $500 two years ago and we’re talking $215. It’s actually come off a bottom too. I think it got as low as about $180 somewhere around there.”

He said the magnitude of the share price decline is out of step with the company’s operating performance.

“Fundamentally, it actually hasn’t been maybe as bad as the stock price would have you believe,” Kacur said. “You’d think that it was completely falling apart. Actually, revenue has been growing, now slower than before. The last three quarters was 7% and 6.5% and then back to 7% again. So somewhere around 6%–7%, which is not huge, but again, the stock is less than half of what it used to be.”

Kacur acknowledged that margins have tightened, but said that is typically what creates opportunity in beaten-down growth stocks.

“Rarely do you get a stock that is growing and maintaining or increasing margins and it’s down as much as that,” he said. “You have to have some reason why it’s down and why it becomes an opportunity.”

He also pointed to management change as a potential longer-term catalyst.

“And a new executive in office for that company as well,” the host noted.

“Exactly,” Kacur replied.

Lululemon shares are down 42.9% over the past 12 months and 34.3% over the past five years. Among analysts covering the stock, three rate it “Buy”, 30 “Hold” and two “Sell”, with a consensus price target of US$213.13.

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