Lululemon Athletica (LULU) is a Zacks Rank #5 (Strong Sell) despitethe company recently posted a solid beat and the stock has sold off as a result. This article will look at why this stock is a Zacks Rank #5 (Strong Sell) as it is the Bear of the Day.
Description
lululemon athletica, Inc. engages in the business of designing, distributing, and retailing technical athletic apparel, footwear, and accessories. It operates through the following segments: Company-Operated Stores, Direct to Consumer, and Other. The company was founded by Dennis James Wilson in 1998 and is headquartered in Vancouver, Canada.
Earnings History
When I look at a stock, the first thing I do is look to see if the company is beating the number. This tells me right away where the market’s expectations have been for the company and how management has communicated to the market. A stock that consistently beats has management communicating expectations to Wall Street that can be achieved. That is what you want to see.
In the case Lululemon Athletica (LULU)I see the company has beat the Zacks Consensus Estimate in each of the last four quarters. This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.
The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.
The most recent quarter saw the company report EPS of $3.10 when the consensus was calling for $2.84. That 26 cent beat translates into a positive earnings surprise of 9.15%.
Earnings Estimates
The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower. For Lululemon Athletica (LULU) I see annual estimates for next year moving lower of late.
The current fiscal year consensus number has slid from $14.72 to $13.01 over the last 60 days.
The next fiscal year has moved from $15.89 to $13.22 over the last 60 days.
Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).
It should be noted that a lot of stocks in the Zacks universe are seeing negative earnings estimate revisions. That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
