Lululemon Athletica (LULU) Showing Signs Of Being A Momo Momentum 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.

Trade-Ideas LLC identified Lululemon Athletica ( LULU) as a momo momentum 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 $264.8 million.
  • LULU has a PE ratio of 4.
  • LULU is currently in the upper 30% of its 1-year range.
  • LULU is in the upper 25% of its 20-day range.
  • LULU is in the upper 35% of its 5-day range.
  • LULU is currently trading above yesterday's high.
  • LULU has experienced a gap between today's open and yesterday's close of 0.6%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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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 4. Currently there are 15 analysts that rate Lululemon Athletica a buy, 2 analysts rate it a sell, and 11 rate it a hold.

The average volume for Lululemon Athletica has been 2.4 million shares per day over the past 30 days. Lululemon has a market cap of $8.7 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 14.9% with 3.87 days to cover. Shares are up 18.9% year-to-date as of the close of trading on Monday.

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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, notable return on equity, increase in net income and solid stock price performance. 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 9.3%. Since the same quarter one year prior, revenues rose by 10.1%. Growth in the company's revenue appears to have helped boost 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 4.66, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, LULULEMON ATHLETICA INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income increased by 151.9% when compared to the same quarter one year prior, rising from $18.98 million to $47.81 million.
  • Powered by its strong earnings growth of 161.53% and other important driving factors, this stock has surged by 67.02% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.

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