Today's Weak On High Volume Stock: Lululemon Athletica (LULU)

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.

Trade-Ideas LLC identified Lululemon Athletica ( LULU) as a weak on high 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 $269.6 million.
  • LULU has traded 1.2 million shares today.
  • LULU is trading at 6.36 times the normal volume for the stock at this time of day.
  • LULU is trading at a new low 3.00% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. 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 (or avoid losses by trimming weak positions). 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.

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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 through two segments, Corporate-Owned Stores and Direct To Consumer. LULU has a PE ratio of 37. Currently there are 12 analysts that rate Lululemon Athletica a buy, 3 analysts rate it a sell, and 11 rate it a hold.

The average volume for Lululemon Athletica has been 2.0 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 0.37 and a short float of 14.6% with 3.73 days to cover. Shares are up 22.4% year-to-date as of the close of trading on Tuesday.

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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 revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, increase in net income and expanding profit margins. We feel its 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:
  • LULU's revenue growth has slightly outpaced the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the 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 4.24, which clearly demonstrates the ability to cover short-term cash needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 42.74% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 1.1% when compared to the same quarter one year prior, going from $109.69 million to $110.85 million.
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 54.22%. 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 18.39% compares favorably to the industry average.

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