) has been a hot stock for many investors over the past few
years. The company has seen tremendous earnings growth and it has
become a popular pick for investors seeking a top retail name
that has potential for further gains.
In fact, in 2012, LULU added about 40%, easily outpacing the
retail sector and the broad S&P 500 as well. However, 2013
hasn't been as kind to LULU as the firm has faced a big slump to
start the year, and then further issues lately thanks to quality
The company actually revealed, just a few days ahead of the
earnings report, that it was recalling many pants from one of its
key lines due to the see-through nature of the fabric's sheer.
This information on a line that accounts for nearly 20% of the
business helped to push the stock down by nearly 7% in the past
Now, with earnings coming up on Thursday investors are left
with a very difficult decision; buy or sell this once high-flying
Reasons to Buy:
- LULU has seen impressive growth rates in the past, and its
PEG is still reasonable.
- This 'sheer' issue with the fabric will be corrected, and
now represents a great buying opportunity on a company that has
plenty of room to run.
- The firm has beaten estimates in four of the previous
quarters so they clearly have the ability to match even lofty
Reasons to Sell:
- LULU now only has a Zacks Rank of 3 or 'Hold'. This is poor
compared to where the company had been even a few weeks ago
when the stock was Ranked as a Buy. The industry rank also
isn't very favorable, so this may be a wider problem going
- Analyst estimate revisions are not favorable heading into
the next quarter or the next year, with near universal
- Having pants that aren't see through seems like kind of a
pretty basic-and necessary-- part of the process, especially if
you are spending $100 on them. Is it possible that LULU has
sacrificed quality for growth and that some of the
die-hards will abandon the company
What do you think?
Is this a great time to buy a superb retailer on a dip, or
is it the end of LULU's incredible story?
Let us know in the comments below!
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