Is Lululemon a bargain after blood-letting?
Shares fall more than 16% Monday. The stock's guidance, not actual earnings, has rattled investors.
By Jeff Reeves
Lululemon Athletica (LULU) announced Monday morning that it has updated its earnings guidance for the fourth quarter, and not for the better.
As a result, shares of the stock sold off by double digits at the opening bell.
According to reports, chief financial officer John Currie stated that, "Since the beginning of January, we have seen traffic and sales trends decelerate meaningfully."
This comes after a similar double-digit selloff after a weak fourth-quarter earnings outlook from December when third-quarter Lululemon earnings hit Wall Street.
No wonder LULU stock is in a tailspin.
Lululemon was once a momentum darling, going from under $3 a share in early 2009 to a peak of almost $80 in early 2012. Its revenue almost tripled in the same period.
However, since then it has been a volatile ride, with the stock struggling to stay above $75 for more than a few trading sessions. . . all because the rate of revenue growth has been slowing and year-over-year earnings gains are becoming less and less impressive. Even if the company has been managing to beat expectations on Wall Street, investors looking ahead instead of back at the past quarter have had serious concerns about slowing momentum.
Seems like those fears regarding LULU stock have been justified. Monday's decline puts Lululemon stock in the low $50s.
Of course, Lululemon isn't alone in the beating its taking today. Fellow momentum stock Sodastream (SODA) is being battered on guidance issues, too.
Investors should pay close attention to these trends. Because it seems like waning momentum for earnings and disappointing guidance could be a trend. FactSet reports that warnings on profitability hit a record for the fourth quarter.
In other words, get used to fast-moving stocks starting to move fast to the downside if they can't put up earnings.
Of course, some might see this as a buying opportunity. After all, double-digit sales and earnings growth are very difficult to come by. Take this trader's tweet, for instance:
— JFinDallas (@JFinDallas) January 13, 2014
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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities.
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