Could there be an imminent “reset” coming in Lululemon Athletica (NASDAQ:LULU) stock? An analyst just issued a warning for investors of the sports apparel retailer, and LULU stock is down moderately today.
Suffice it to say, Bernstein analyst Aneesha Sherman isn’t ultra-bullish on Lululemon at the moment. Is it possible the company’s previous growth is unsustainable?
Sherman seems to suggest Lululemon’s current and future revenues will disappoint investors. “This past year, our biggest concern on LULU has been the bullish expectations of perpetual 20%+ top line growth,” the analyst wrote.
Now, Sherman continued, it’s time for a “reality check.” The analyst cited “no more pent-up demand, a more cautious consumer outlook, and negative margin mix shifts” as major concerns for Lululemon Athletica.
Consequently, according to Sherman, “earnings growth will decelerate materially and we expect the multiple to follow.” Thus, bullish investors expecting Lululemon to post top-line growth of 20% or more will get a “reality check.”
What’s Happening with LULU Stock?
Given Sherman’s tough talk about Lululemon, it was practically inevitable that LULU stock would take a hit today. And indeed, the Lululemon share price sank about 3% in early-session trading today.
The share price could decline further this year, as Sherman is evidently preparing Lululemon’s investors for a “reset.” Furthermore, the Bernstein analyst downgraded Lululemon shares to “underperform” and assigned them a $290 price target.
That’s a bearish price objective, as LULU stock is currently above $300. Yet, the share price could decline further if Sherman’s predictions turn out to be spot-on.
The analyst expects Lululemon’s revenue growth to decelerate to 13% in fiscal 2023. Not only that, but Sherman envisions Lululemon’s per-share earnings growth slowing from an impressive 39% compound annual growth rate (CAGR) recorded during the past five years to 33% in 2022 and then to just 12% in 2023.
Hence, the Bernstein analyst served up some dire projections along with the downgrade of Lululemon. And so, some LULU stock investors are dumping their shares today, possibly out of concern that Sherman’s bearish predictions will come true.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.