Bullish on Athleisure? Here’s Why Lululemon Stock Shines

Key Points

• Lululemon shares are up 70% since August and still climbing.
• Analysts are bullish, with the most recent price target pointing to nearly 20% further upside.
• Strong fundamentals, technicals, and buybacks signal more growth ahead.

Lululemon Athletica Inc. NASDAQ: LULU shares have been on a tear in recent months, and for good reason. After a tough first half to 2024, the stock closed the year with an impressive rally, gaining a solid 70% since August. As we head into the first couple of weeks of the new year, Lululemon's momentum shows no signs of slowing down. 

The company, headquartered in Vancouver and boasting a market cap of around $50 billion, has firmly established itself as a leader in the athleisure space. Known for its premium yoga pants and activewear, Lululemon has built a loyal customer base and expanded its footprint across the globe. 

But while the broader market was able to spend most of last year at, or near, all-time highs, Lululemon struggled to keep its head above water. It's still a good bit off its record close from December 2023, but there are reasons to think this won't be the case for much longer. Let's jump in. 

Why Lululemon’s Fundamentals Support Continued Growth

To start with, Lululemon's recent financial performance has been fairly solid in recent quarters. The company smashed expectations with its latest earnings report last month, delivering more than 9% year-over-year revenue growth. This was accompanied by robust forward guidance and an update from management on the increase to their stock repurchase program, one of the most bullish signals a company can send to investors. 

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When executives are willing to put their money where their mouth is, it strongly indicates they believe their shares are undervalued. Investors should look for the stock to continue its upward trajectory as these tailwinds build. With macro factors like the Fed cutting interest rates fueling both a risk-on environment for shares and increasing consumer spending, Lululemon's fundamental drivers are well aligned with broader market trends. The stock should benefit from this tailwind accordingly. 

Analysts Highlight Lululemon’s Undervalued Potential

Building on the case that Lululemon shares are undervalued right now, they've been gaining all the right kind of analyst attention this year so far. This week alone, the team at JPMorgan reiterated their overweight rating on Lululemon, citing the company's strong position in a rapidly growing market. Also, this week, Bernstein upgraded their rating on the stock to Outperform and set a price target of $460. 

From where the stock closed on Wednesday night, that's pointing to a targeted upside of nearly 20%. Bernstein's optimism is rooted in an anticipated turning point in the company's Americas business, driven by increased spending from higher-income consumers. For those of us on the sidelines, it's a compelling argument to be leaning into. 

Is Lululemon’s 2024 Ascent Justified?

Of course, no investment is without risks, and Lululemon's rapid ascent in the latter half of 2024 has not gone unnoticed. In December, Citigroup and Deutsche Bank issued neutral ratings, suggesting they wanted further signs of fundamental performance that justified the rally.  

However, while their concerns are worth noting, they feel overly cautious in light of the company's strong earnings performance and bullish share repurchase plan. With a strong Q1 earnings report likely to dispel much of this skepticism, investors should be expecting shares to continue playing catch up on the broader market. 

Lululemon’s Technical Setup Supports Further Gains

The final piece of the puzzle to consider is Lululemon's technical setup. The stock's relative strength index (RSI) currently sits at 63, a level that indicates solid momentum without being in overbought territory. 

For context, the RSI is a widely used indicator that measures the speed and change of price movements, with readings above 70 considered overbought and below 30 oversold. In Lululemon's case, its RSI points to strong momentum that will likely stick around for some time. Combine this with its ability to exceed analyst expectations for its earnings and the bullish analyst updates this week, and it's hard not to be excited about what's ahead.