Pacific Trader: Waiting to buy Lululemon on sale? Now’s your time

Despite 2023 revenue and profit growth, LULU stock just pulled back almost 20 percent

The stock: Oh, to have bought Lululemon Athletica (NASDAQ:LULU) shares when they first went public on the NASDAQ in 2007 at US$18. Virtually ever since, the athletic apparel designer has been a stock market darling, trading well ahead of what its earnings and book value would justify (sort of like the company’s leggings and sports bras). The only hope for the value-conscious investor to get their hands on the stock is to wait patiently and buy the dips.

The drivers: Well, one of those rare dips just arrived. (Or maybe it’s the beginning of a longer-term decline. That’s the thing about dips—you can only see them in hindsight.) LULU stock plunged 16 percent March 22 (and more since) after releasing quarterly and year-end results that, while they exceeded analyst forecasts, pointed to softening North American sales growth. While full-year revenues rose 15 percent—and 60 percent in China—the growth in the U.S. and Canada was a tepid seven percent. Forward-looking guidance for 2024 is even more subdued.

This is the risk in owning a stock priced for perfection. Any hint that its pace of growth is faltering is met with shock and dismay in the markets. If, however, you expect America’s economic slowdown to pass by the second half of this year and the company to continue churning out must-have sportswear, this could end up being a highly opportune time to buy into what has to date been an expertly run, long-term growth story. Trading at US$386.14 as of Tuesday’s close (March 26), LULU is still up 22 percent over the past year.

Incidentally, Canadians now have another—and more affordable—way to get exposure to Lululemon through Canadian Imperial Bank of Commerce’s currency-hedged depository receipts (NE:LULU), which trade on Cboe Canada (a.k.a. the Neo Exchange), most recently for $17.65.

Word on the street: “We encourage investors to buy on weakness and look for revenue upside and resulting leverage of SG&A (sales, general and administrative expenses) to deliver upside to earnings and shares as the year unfolds,” wrote Stifel analyst Jim Duffy. He trimmed his 12-month price target to US$539 with a “buy” rating.

Coming and going: Dynasty Gold Corp. (TSXV:DYG) was unchanged Tuesday at 14 cents a share on the TSX Venture exchange despite the release of a report by the Canadian Ombudsperson for Responsible Enterprise stating that Uyghur labourers were likely forced to work at the company’s Hatu Qi-2 gold mine in China. The ruling puts the federal government on notice to possibly sanction Vancouver-based Dynasty, which denies the allegations.