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Why lululemon athletica, Inc. Is Poised to Bounce Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Nomura Securities initiated coverage on lululemon athletica  (NASDAQ: LULU  )  this morning with a buy rating, suggesting that the yoga gear retailer might be ready to rebound.

So what: Along with the bullish call, analyst Robert Drbul planted a price target of $70 on the stock, representing about 45% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's sharp plunge over the past several months, Drbul thinks Lululemon is too cheap to pass up given the strong U.S. and international expansion prospects it still has ahead.

Now what: According to Nomura, Lululemon's risk/reward trade-off is rather attractive at this point. "We believe the brand is strong and estimate the company can double revenues to [about $3 billion] over the next five to seven years," noted Drbul. "We expect this growth to come from: a recovery in comps, U.S. store expansion, e-commerce, and an expansion of international markets. We believe lululemon can nearly double its U.S. store base footprint to 300 stores (from 166 currently) over the next five to seven years; its international potential remains largely untapped." When you couple that bullish outlook with Lululemon's beaten-down stock price -- off about 40% from its 52-week high -- it's tough to disagree with Nomura's bullish stance.  

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/1/2015 9:58 AM
LULU $62.82 Down -1.20 -1.87%
Lululemon Athletic… CAPS Rating: ***