Cheap Lululemon stock price forms a double-bottom: is it a bargain?

Lululemon stock price has collapsed in the past few years as its growth momentum stalled, competition rose, and management challenges remained. LULU dropped to $176 on Monday, down by 65% from its highest level in 2024, with the market capitalization dropping from $73 billion to $21 billion, a $52 billion wipeout.

Lululemon stock price technical analysis points to a rebound 

The weekly chart shows that the LULU stock price has been in a strong downward trend in the past two years. This sell-off started when it peaked at the all-time high of $518 in 2024. It initially plunged to $226 in August 2024 and then rebounded to $424 in February 2024.

The stock then resumed the downtrend and bottomed at $157, its lowest level in September last year. It has constantly remained below the 50-week and 100-week Exponential Moving Averages (EMA), a sign that bears remain in control today. The stock also remains below the Supertrend indicator.

However, on the positive side, there are signs that it has formed a double-bottom pattern at $158 and a neckline at $225. This neckline coincides with the lowest swing in July 2024.

The Relative Strength Index (RSI) has started to form a bullish divergence pattern, which happens when an oscillator is rising during a downturn. Also, the two lines of the MACD indicators are pointing upwards and nearing the zero line.

Therefore, there is a likelihood that the stock will rebound in the coming weeks. A potential catalyst for this will be the upcoming financial results, which are scheduled on March 27.

Lululemon has become a bargain 

There are signs that the ongoing Lululemon stock crash has made it a bargain. Data compiled by Seeking Alpha shows that its forward price-to-earnings ratio has dropped to 14.20, lower than the sector median of 21. It is also lower than the five-year average of 32.

More valuation multiples also show that the stock is a bargain. For example, the forward EV to EBITDA multiple is 8, also much lower than the sector median of 10.

The falling valuation multiples are because the company's growth has slowed in the past few months years as competition from companies like Nike, Under Armour, Vuori, and Athleta. 

Growth in its crucial American segment has deteriorated. The most recent results showed that its Americas revenue dropped by 2%, with its comparable sales rising by 5%. 

This retreat was because of Donald Trump's tariffs and the fact that Americans have more options. It recently halted sales of its Get Low leggings amid concerns that they were see-through. Lululemon pulled its Breezethrough line in 2024.

Lululemon’s revenue rose to $2.56 billion in the third quarter, while its net income fell by $50 million to $306 million.

The company has also faced headwinds that pushed its CEO out, as the founder blasts the current management. He has shared four names he would like to see added as directors. In a recent statement, the company blasted the founder, noting that he had allowed one nominee to be interviewed. The statement said:

“To date, Mr. Wilson has only allowed one nominee, Marc Maurer, to have preliminary conversations with the Board, which the Board has welcomed. It is unfortunate that Mr. Wilson has been unwilling to have a constructive dialogue toward a reasonable resolution.”

Therefore, the stock may rebound once these board challenges are addressed and when the company names a permanent CEO, who will be tasked with turning around the company.