Key Points
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Lululemon dropped over 22% following a guidance cut and tariff-related worries.
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Lululemon can’t control tariffs, but it can innovate its way back to the top.
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The “cheap” stock is a lot cheaper and is probably worth picking up.
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After you’ve put in the homework on a given stock, getting the viewpoints from the smart folks on Wall Street may confirm whether you’re on the right track.
Undoubtedly, Jim Cramer of Mad Money is a respected man with a huge following. And whenever he gives his blessing to a stock, you can be sure that the retail crowd will be listening up. For investors who’ve done the homework and have a “thumbs up” from Cramer himself, one could be looking at a rather timely buy.
Recently, Cramer gave his praise for shares of Vancouver-based yoga wear maker Lululemon (NASDAQ:LULU), citing it as “just too cheap.”
Fast forward to today, and the stock has imploded, shedding more than 22% of its value in the after-hours trading sessions following a somewhat decent first-quarter earnings showing.
Indeed, the cheap stock has suddenly become a heck of a lot cheaper. But there are some serious headwinds on the horizon, and management’s latest commentary didn’t seem all too encouraging.
So, does the latest post-quarter flop change things? Or is it time to start doing some buying in a name that may have just ripped most of the tariff band-aid off?
Lululemon: A cheap apparel stock that just got marked down another 20-25% off!
The actual quarterly numbers themselves weren’t too bad. The real red flag was the company’s surprising (or perhaps not so surprising) tariff-induced full-year profit guidance cut.
Your next pair of yoga pants may be about to get more expensive, with Lululemon poised to hike prices (what it’s calling “strategic price increases” in response to rising costs brought on by tariffs.
Undoubtedly, Lululemon gear is already quite pricey. And if we are poised for an economic recession at point in the second half, the path of least resistance in LULU stock could be lower, as the name looks to revisit multi-year depths in the $230s. Either way, a softer consumer may not be so quick to make up for lost time anytime soon, especially as the rising costs of necessities continue to reduce the disposable income in our wallets.
It’s not just tariffs that LULU investors should be worried about
Tariffs are a major thorn in the side of many firms these days. But it’s not the sole source of Lululemon’s pains. Jefferies analyst Randal Konik rang the alarm bell on Lululemon a few months ago, citing sluggish growth, swelling inventory, and difficulties with hitting the spot on some of its newer products and innovations.
Rivals, including Vuori and Alo Yoga, could continue to nibble away at Lululemon’s market share, even once tariff-induced pressures and a softer consumer are no longer a problem. In many ways, Lululemon seems to be experiencing similar struggles as footwear giant Nike (NYSE:NKE).
Like Nike, it could take some time before Lululemon can get out of its latest post-earnings downward dog pose. Perhaps doubling down on product innovation and the international expansion could help get LULU stock off the mat sooner rather than later. Easier said than done, though.
In the meantime, Lululemon appears to be more exposed to tariff and recession risks than many other names in the retail sector. That said, with a new slate of lowered expectations and a robust brand that’s still capable of commanding a premium price tag, perhaps it’s time to brave the carnage once the P/E multiple falls into the high-teens.
Personally, I think the $250 level could act as a decent entry point for fans of the brand and the now-historically depressed valuation.
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The post This Cheap Stock Had Jim Cramer’s Blessing—Time to Buy? appeared first on 24/7 Wall St..
