With earnings on tap, will investors flip for Lululemon (NASDAQ:LULU) or will LULU stock take a tumble? Let’s take a look at Wall Street’s expectations and the price chart to establish a more grounded risk-adjusted determination. Let me explain.
From this week’s impeachment proceedings against President Donald Trump and the Federal Open Market Committee’s last meeting of 2019 to a looming tariff increase on Chinese imports, there’s a lot to in the news to make investors feel the heat. And so they did to begin the week, as the broader market came under pressure. The losses were mild, but from Amazon (NASDAQ:AMZN) to AT&T (NYSE:T), plenty of stocks were in the red.
But the same can’t be said for LULU stock.
Lululemon Stock Showing Strength
LULU stock managed to buck the rest of Wall Street by finishing up 0.65% after hitting a fresh all-time-high on Monday. Conditions could get stickier though. The yoga-inspired and athleisure fashion powerhouse is set to release its latest quarterly earnings report Wednesday after the market close.
By the numbers, analysts are forecasting LULU stock to deliver profits of 93 cents per share. That compares favorably to last year’s earnings of 75 cents.
Lululemon also has a knack for beating official estimates. In fact, its streak of topping views stands at four in a row. Not surprising, LULU’s whisper number raises the bar to 98 cents.
Sales are expected to climb as well. Quarterly revenue forecasts are betting Lululemon can deliver a top-line of $899.6 million. If it can reach that number, that marks year-over-year quarterly sales growth of 19.9%.
LULU stock also has a capacity for going higher after it reports. Statistically, Lululemon shares have finished higher 28 out of the last 39 quarterly announcements. That’s 71% of the time. Many of those moves have been significant helping LULU earn a volatile predicted move of 9%.
LULU Stock Price Weekly Chart
If investors are prone to sweating before quarterly confessionals, they’re not showing it in LULU stock. Actually, far from it. Over the past two and one-half years, shares of Lululemon have enjoyed a very nice bull run of around 475%. But there are reasons to see some of today’s confidence as misplaced.
Aside from its hefty performance, over this same period LULU has just finished establishing two distinct Fibonacci-based two-step or mirror move patterns. The provided weekly chart illustrates legs “AB” and “ab” have been matched by identical legs “CD” and “cd” to complete both patterns.
With the conclusion a single two-step pattern, in general the prospect of profit-taking is raised. Magnify that by two, as it is in LULU stock, and throw in an overbought stochastics setup, and you’ll find minding that very real possibility is even more prudent.
So, what are we looking at? In a healthy market environment, corrections of up to 30% in leading growth stocks are quite common. A counter move of that size would result in LULU stock challenging this past May’s successful pullback test after breaking out to fresh all-time highs. Incidentally, that breakout did occur after a corrective cup-shaped base of just more than 30% completed.
Will history repeat itself? Maybe not. Still, given the situation, I wouldn’t dismiss Lululemon’s ability to rhyme and offer better opportunities for investors to buy shares at lower prices.
Investment accounts under Christopher Tyler’s management currently own positions in in UAA stock and its derivatives, but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
