Oh boy, what a bad year it’s been for shares of Vancouver-based yoga wear maker Lululemon (NASDAQ: LULU), which are down close to 60% from their all-time highs. Perhaps the power of an apparel brand only goes so far. And while there’s certainly competition on the scene, I find it absolutely absurd how cheap LULU stock has become.
While the name gained close to 5% on Friday’s trading session, I do see the name as a deeply discounted rebound play that I’d bet won’t stay down for too long. Indeed, the yoga wear scene can be a tough place to thrive these days. The market for $100-plus yoga pants isn’t exactly hot. And as the firm stumbled in its bid to make a deeper dive into fitness tech, I do think that the company has what it takes to pick up traction as it expands further beyond the U.S. and Canada.
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Lululemon’s stumbles are an opportunity for dip-buyers
For now, footwear, men’s wear, and other “growthy” product categories have been a bit of a wild card. On both fronts, Lululemon has experienced limited success depending on who you ask. In any case, I do think that the growth segments haven’t been as hot as they could have. And for Lululemon, there really are no easy answers as more investors sour on the stock.
Though fitness apparel and trends (such as the rise of athleisure) are difficult for an investor to keep up with, I do think that LULU stock now has a low enough bar that it can perhaps start trekking higher again. Though nobody knows when the stock will get out of that downward dog formation, I do think that recent buying activity from the likes of Dr. Michael Burry, the man behind The Big Short, is nothing short of encouraging. He’s a smart guy and has an appetite for those true contrarian deep-value plays.
Lululemon stock is getting too oversold
At 14.1 times trailing price-to-earnings (P/E), I’ll go ahead and say it: LULU stock is obscenely undervalued. Of course, the name has a lot of baggage. Sell-side analysts have made that much clear. Though there’s significant growth potential as it expands into new product categories, it’s unclear if it’ll hit the ground running. Footwear and men’s wear were supposed to be needle-movers, but investors are still waiting for the uplifting effects.
They may be waiting for a long time as Lululemon takes a hit to the chin for wandering perhaps a bit too far beyond its circle of competence. It’s unclear where Lululemon can go from here, as it puts past blunders (the Breezethrough legging blunder from last year caused a sheer debacle) behind it while younger generations opt to go with different brands. If the company can turn a corner, there could be a ton of upside. Though there’s only so much innovation you can do when it comes to yoga wear, I do think that the odds favour the dip-buyers at this juncture.
Perhaps the big reason to stick with the name is the company of Michael Burry, a fellow investor who knows value investing best.
