Shares of Lululemon (NASDAQ:LULU) can’t seem to get out of a downward dog formation. And while the athletic apparel firm boasts some big-name investors, including the likes of the great Dr. Michael Burry (you may remember him from the film The Big Short), I just don’t see a scenario where dip-buyers should rush into the falling knife today. Indeed, you don’t need to be a hero by buying this vicious dip. And while I’m not 100% against striking a “warrior pose” by braving this dip alongside the company of investors like Dr. Burry – a man I have a ton of respect for – I’d rather put the name in the wait-and-see category.
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LULU stock is arguably the cheapest it’s ever been, but industry headwinds are too strong
There’s a lot of moving parts here, and while shares do seem to be appearing cheaper by the day, I don’t think the bargain-binned stock is worth grabbing with both hands quite yet, at least not until the firm can put together a quarter offering something for shareholders to be hopeful for again. Indeed, that last quarterly earnings results fell well short of expectations that were already low to begin with.
So, the fact that LULU stock still managed to nosedive when facing a low earnings bar, I think, does not bode well for dip-buyers going down the stretch.
At multi-year depths of $162 and change per share, along with an 11.1 times trailing price-to-earnings (P/E) multiple, I must say I’ve never seen the stock going for this cheap. I guess it comes down to whether you’re a believer in the brand or a personal fan yourself. Indeed, if you know the retailer well and have more than one article of their clothing, perhaps you know more about the firm than any retail analyst.
Undoubtedly, Lululemon may very well be more than just a seller of expensive yoga wear meant for inside and outside of the gym. And while the brand may be worth a greater premium, I’m just not sure what the firm can do to get people to start buying again – and at full price.
Lululemon’s a fast-falling knife I wouldn’t try to catch
And while the Lululemon brand might prove doubters wrong, I’m not the biggest fan of investing in athletic apparel as a whole. Trends can move fast, and new investors could quickly find themselves skating offside.
Indeed, further discounting could significantly erode margins, but how else could the Vancouver-based athleisure retailer get its sales back on track? I have no idea. And it seems like neither do investors following KeyBanc’s recent comments, stating Lululemon “lacks” positive catalysts for “coming quarters.”
Could Lululemon pull off a surprise that allows it to sell well while charging a premium price again? I’m doubtful, even as a slate of new products looks to come online in the new year. The broad athleisure scene is in a tough spot right now. However, with the stock in the bargain bin, I certainly think it’s not a terrible idea to start nibbling, given that nearly 69% has been wiped out since shares peaked at the end of 2023.
Though I would caution dip-buyers from assuming a bad situation can’t get worse. After a 19% post-earnings drop, I think it’s clear the dangers of catching a falling knife while telling oneself things couldn’t possibly get worse. For Lululemon stock, things have gotten worse, and the drop could certainly intensify before the next big ricochet.
