Lululemon Athletica (LULU 0.65%) has been one of the most disruptive companies in the apparel industry in the last generation. It essentially invented the athleisure segment, making high-end yoga pants fashionable, but it has struggled recently, and now, one prominent Wall Street analyst has cut his rating on the stock.
Citi cools on Lululemon
In a note on Thursday, Citigroup analyst Paul Lejuez downgraded Lululemon from buy to neutral and lowered his price target to $300 from $410. At his new price target, Lejuez still sees an upside of 16% for the stock over the next 12 months, but it's clear he's not as excited about it as he once was.
Lejuez noted that growth in the active apparel category is decelerating, and pointed to consumer weakness in China. He also noted that the design of the company's new Breezethrough leggings had been widely criticized by customers. On Thursday, after the company announced it was pausing sales of the Breezethrough line, its stock price tanked.
Is Lululemon a buy?
Lululemon is now down roughly 49% from its peak late last year, and the stock is the cheapest it's been on a price-to-earnings basis in several years, trading at a multiple of just 20, far from the premium valuation it has historically carried.
While the company is facing challenges, including broad industry headwinds that have also sunk Nike to multiyear lows, Lululemon is still growing and has a substantial opportunity in front of it.
Revenue rose 10% year over year on 6% comparable-sales growth in its fiscal Q1, which ended April 28. Considering this year's retail environment, those are strong numbers. And its sales are still growing rapidly outside of the Americas -- international revenues rose 40% on a constant-currency basis in the quarter.
The company is on track to double its revenue from 2021 to 2026, reaching $12.5 billion, and China presents a long-term opportunity as well.
Wall Street may be cooling on the stock, but Lululemon now looks too cheap to ignore. It's a buy.
