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Lululemon Gets an Upgrade, but Its Stock Is Way Overvalued

By Rich Duprey – May 19, 2020 at 11:49AM

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An analyst sees lots of upside from the work-at-home trend, if not from the retailer's stock.

The COVID-19 pandemic has changed a lot of consumer behaviors, like a lot of people suddenly wanting to exercise because they have nothing else to do while on lockdown. 

Peloton (PTON -14.44%) has seen a massive surge in memberships for its interactive workouts, nearly double the year-ago period, while also experiencing the lowest level of customer churn in four years.

That bodes well for athleisure apparel maker lululemon athletica (LULU -2.95%), which B. Riley FBR analyst Susan Anderson believes will benefit both from more people exercising and also the work-at-home phenomenon.

Mother and daughter wearing athleisure clothing.

Image source: Getty Images.

Working out while working from home

Twitter and Square have told employees they can work from home forever if they want, instead of coming into the office, while Google parent Alphabet has said its employees will work from home until at least 2021.

Not needing to get dressed to go to the office means boom time for clothes that can pull double duty as workout wear and lounging attire.

In a research note to clients, According to thefly.com, Anderson said the twin imperatives resulting from the pandemic are causing her to upgrade her outlook for Lululemon to buy from the previous neutral rating.

Yet despite believing higher online sales for the retailer will materialize, and that its current share price is an attractive entry point for investors interested in Lululemon's "high quality growth," Anderson left her price target at $210, which is 18% below where it currently trades.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Lululemon Athletica, Peloton Interactive, Square, and Twitter and recommends the following options: short September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$300.22 (-2.95%) $-9.12
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$97.42 (-2.63%) $-2.63
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$42.74 (-1.18%) $0.51
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$98.09 (-2.63%) $-2.65
Block, Inc. Stock Quote
Block, Inc.
SQ
$55.90 (-5.37%) $-3.17
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
PTON
$7.05 (-14.44%) $-1.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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