Lululemon Pre-earnings Analysis
Chart done on daily timeframe. Lululemon is set to report earnings this week and expectations are extremely optimistic. Analysts are estimating nearly 100% quarter over quarter growth in profits, likely because this was their holiday quarter. The athletic wear giant has proven over and over again that it can top expectations, but many are questioning this quarter’s performance considering the slowdown in consumer discretionary spending and rising competition. LULU’s stock has grown more than 50% in the last 12 months, leading its valuation to around 59x, double the valuation of Nike and about four times higher than the healthy average. This makes this earnings report extremely important to how investors may see LULU for the remainder of the year. There are only two ways to adjust LULU’s valuation to a more “reasonable” area, they either report strong earnings per share/profits, or the stock needs to drop. If they beat their earnings this quarter that would be a substantial feat that could justify the valuation in the shot term. Guidance will also be watched closely because many companies have reported soft guidance. Investors want to see strong guidance to continue believing in the stock at these highs.
Option chain analysis:
LULU’s quarterly options, which expire March 28th, currently reflect an implied volatility reading of 86%, which translates to about a $48 move. Which direction will depend on the earnings results and call.