Lululemon stock is in a deep bear market: an outright bargain?

Lululemon (NASDAQ: LULU) stock price has been in a freefall this year as concerns about its growth continue. Recently, it has dropped for five straight days, pushing it to its lowest level since March 2023. It has plunged by over 37% from its highest point this year.

Growth is easing amid rising competition

Lululemon’s share price has crashed hard after the company published weaker-than-expected results and guidance in February. These results revealed that its revenue rose by 16% in the fourth quarter to $3.2 billion.

Americas revenue rose by 9% while its international segment jumped by 54%, helped by new store openings. At the same time, gross margins rose by 0.405 to 59.4% while its income jumped to over $913 million.

Analysts expect that the company’s revenue rose to $2.2 billion in the first quarter followed by $2.46 billion in Q2. The average estimate for the annual revenue will be over $10.4 billion, an increase from the $9.6 billion it made in 2023.

Therefore, the Lululemon stock price performance is a sign that most investors anticipate its revenue growth to moderate. Besides, the company has a modest room to expand its store locations globally. It is also facing competition from the likes of Nike, On Holding, and Adidas.

Still, I believe that Lululemon is still a good investment. First, the stock is a bit undervalued. It has a forward P/E ratio of 23, which is slightly higher than the S&P 500 figure of 21. However, its forward revenue growth of 13% is higher than that of the S&P 500 index.

Second, Lululemon is still one of the most powerful brands in the athleisure industry. While its growth has slowed, it is still seeing double-digit growth, which is a good thing for a company that was started in 1998.

Further, the company’s international growth is accelerating. The most recent results showed that its international business jumped by 54% in the fourth quarter. Finally, it has a strong balance sheet with over $2.2 billion while its inventories fell by 9% to $1.3 billion.

Lululemon stock price forecast

LULU chart by TradingView

The daily chart reveals that the LULU share price has been in a strong bearish trend after peaking at $516 in December. It formed a death cross pattern when the 200-day and 50-day Exponential Moving Averages (EMA) crossed each other.

Most recently, it dropped below the support at $330, its lowest swing on April 16th. It is also nearing the 78.6% Fibonacci Retracement level while the Relative Strength Index (RSI) has moved to the oversold level.

Therefore, the stock will likely continue falling and then bounce back ahead of its earnings, which are scheduled for June 5th. If this happens, it could drop to $300 and then start bouncing back.