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Should I Buy LULU Stock? 3 Pros, 3 Cons

Lululemon gets a boost in the form of analyst upgrades

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Lululemon (LULU) got a boost Feb.7 when RBC Capital Markets analyst Howard Tubin upgraded LULU stock from “sector perform” to “outperform.”

lulu-stock-lululemonAs a result of the upgrade, LULU stock has moved higher over four consecutive days of trading. Tubin believes the worst is behind LULU making it one of the best growth stories today.

This change of heart raises the question: Should you buy LULU stock? Here are three pros and cons.

LULU Stock Pros

New leadership: Two things have happened in recent months that will help heal the wounds that developed during Christine Day’s reign as CEO. First, she’s gone. Although responsible for guiding the company through its steep growth curve, she didn’t provide nearly enough leadership for quality control; this rocked LULU’s brand not to mention LULU stock, which is down 41% from its 52-week high of $82.50. Secondly, founder Chip Wilson took his foot out of his mouth long enough to resign as chairman and the company hired Laurent Potdevin — former Burton Snowboards’ CEO — in December. Potdevin was a good hire who should be able to right the ship.

Lowered expectations: Lululemon lowered its Q4 guidance in mid-December to a range of 78 cents 80 cents per share. One month later, it lowered that range an additional seven cents. Investors must be thinking the number could be lower still when it announces Mar. 27. At this point, I don’t think most people are expecting too much from the wounded retailer. Any beat on this number, especially a big one, would likely be construed as a huge positive, sending LULU stock higher. A miss, if only slightly, likely won’t move the stock at all. If you think like Tubin, there’s little downside buying now.

Capital group: If you believe in signs, none is bigger than Capital Group’s announcement that it is now the third-largest shareholder of LULU stock, owning 11% of the company. Only Chip Wilson and Fidelity own more. In the past four months, Capital Group has more than doubled its stake from the 5.1% interest it held at the end of September. That’s a strong statement when you consider Capital Group manages more than $1 trillion worldwide.

But on the other hand…

Article printed from InvestorPlace Media,

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