Lululemon Athletica Inc. shares jumped in trading Tuesday after an analyst upgraded the sportswear retailer due to its low stock price.
Paul Lejuez of Credit Suisse lifted his rating to "Outperform" from "Neutral" in the wake of a 65 percent decline in the stock's since it hit a year-high of $60.70 in October. The stock is at its lowest level since the Canada-based chain went public last summer.
Shares have declined due in part to stock sales by Lululemon's private equity shareholders, creating a near-term imbalance, according to Lejuez. Long-term shareholders should take advantage, he wrote in a note to clients.
Investors may also fear that the chain, which sells its own line of athletic apparel primarily for women in stores in Canada, the U.S. and overseas, will suffer along with the broader retail sector as consumers trim their discretionary spending. Based on his checks, however, Lejuez thinks "sales momentum has continued."
He estimates that even if the retailer's same-store sales slow down, earnings per share should grow at least 50 percent next year.
Same-store sales is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.
"LULU is the most attractive growth story in our softlines universe, with 30 percent to 50 percent square footage growth annually over the next three years," he wrote.
Lululemon shares rose $4.43, or 20.4 percent, to $26.15 Tuesday.
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