NEW YORK (TheStreet) -- A one-year chart of Lululemon Athletica (LULU) - Get Lululemon Athletica Inc (LULU) Report stock may not be as good-looking as the company's stylish exercise clothing, but shares are set to break to the upside.
Lululemon shares recently tested their 52-week lows and held up, catching a small bounce to the upside. With a sizable bid just underneath current price levels, it's easy to manage the risk of a bullish trade in this stock.
I won't launch into a full-blown discussion of technical analysis, but the chart does appear to have bottomed.
More importantly, new CEO Laurent Potdevin appears to bring fresh energy to company, and Lululemon seems to be gaining popularity with a new group of customers: men.
My wife and I are avid bodybuilders, and because my wife loves to shop at our local Lululemon, I spend more time there than I'd like to admit.
For women, the leggings become an addiction. If you own one pair, you probably own four. The same goes for the tops, handbags, socks, underwear and other accessories.
I know several people who are carrying substantial credit card debt partly because their Saturday Lululemon shopping sprees, and not all of them are women.
In fact, in my recent visits to the local Lululemon store, more than half of the customers were fit men. The new norm is men who are willing to shell out more than $50 for a T-shirt, $40 for a pair of boxer briefs and more than $100 for pants and track suits. When the store opened several years ago, it was rare to see men in it all, let alone men standing in the checkout line with their arms full of clothes.
These men run the gambit from avid runners to fitness competitors and bodybuilders. The ever-expanding market for Lululemon apparel is something that very soon should increase same-store sales and the company's stock price.
Store employees have told me there has been a definite resurgence in the brand's popularity recently and expect this to continue as new, fresh and innovative products hit shelves this coming holiday season.
At my local Lifetime Fitness (LTM) - Get LATAM Airlines Group SA Sponsored ADR Report gym, Lululemon clothing is a definite status symbol. It is the Starbucks (SBUX) - Get Starbucks Corporation Report of the fitness world. It's the brand of the "pretty people," and everyone wants it.
Although Nike (NKE) - Get NIKE, Inc. (NKE) Report and Under Armour (UA) - Get Under Armour, Inc. Class C Report are formidable competitors, they don't carry the same prestige as Lululemon, especially in leggings.
But popularity can wane if a product isn't well-made. My wife competes nationally in NPC bodybuilding competitions, so her gym clothes get a lot of use. Some of the first Lululemon garments she purchased more than two years ago have held their shape perfectly through hundreds of high-intensity workouts and washings. In fact, they could still pass as brand-new.
Recently there has been takeover chatter in the name, as well as rumors that an activist investor may be interested in the company. This could usher in a renewed interest in the stock and quickly drive its price higher.
In sum, this is a beaten-down name that has bounced off yearly lows. It is a company with a product that people continue to aspire to own and one that has a clear association with a specific healthy lifestyle.
Pair these with a new CEO, and you have a stock ready to pop.
Expect to see Lululemon stock make money for long-term investors and traders alike in the second half of 2014.
At the time of publication, Smalley had no positions in stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Now let's look at TheStreet Ratings' take on some of these stocks.
TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- LULU's revenue growth has slightly outpaced the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 11.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in 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 7.20, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 54.13%. 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, the net profit margin of 4.93% trails the industry average.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.14%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 59.37% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income has significantly decreased by 59.9% when compared to the same quarter one year ago, falling from $47.28 million to $18.98 million.
- You can view the full analysis from the report here: LULU Ratings Report