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Trade-Ideas: Lululemon Athletica (LULU) Is Today's "Storm The Castle" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Lululemon Athletica ( LULU) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Lululemon Athletica as such a stock due to the following factors:

  • LULU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $156.1 million.
  • LULU has traded 10,105 shares today.
  • LULU is trading at 2.30 times the normal volume for the stock at this time of day.
  • LULU crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in LULU with the Ticky from Trade-Ideas. See the FREE profile for LULU NOW at Trade-Ideas

More details on LULU:

lululemon athletica inc., together with its subsidiaries, designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth. It operates in three segments: Corporate-Owned Stores, Direct To Consumer, and Other. LULU has a PE ratio of 38.5. Currently there are 10 analysts that rate Lululemon Athletica a buy, 3 analysts rate it a sell, and 13 rate it a hold.

The average volume for Lululemon Athletica has been 2.3 million shares per day over the past 30 days. Lululemon has a market cap of $8.1 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.66 and a short float of 17.6% with 9.40 days to cover. Shares are down 6.5% year to date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lululemon Athletica as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 21.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.46, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 57.56% to $25.14 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 24.08%.
  • LULULEMON ATHLETICA INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LULULEMON ATHLETICA INC increased its bottom line by earning $1.85 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.85).
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 52.77%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LULU's net profit margin of 13.67% compares favorably to the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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