Market Overview

Shares of Lululemon Nosedive on Credit Suisse Downgrade

Shares of Lululemon Athletica (NASDAQ: LULU), the Canadian-based athletic apparel company famous for its yoga clothing, tumbled on Friday, closing down over four percent.

The tumble can be attributed, at least in part, to a negative note from Credit Suisse analyst Christian Buss, who downgraded the stock from “Outperform” to “Neutral,” citing a likely slowdown in the company's sales at its Canadian outlets.

"We see long-term risks to its competitive positioning and pricing power as active wear gains shelf space across retail channels,'' he wrote, as part of his justification for cutting the company's target price from $86 to $80.

Buss expressed concern regarding drops in sales figures at the company's older chain stores and the recent, rapid proliferation of “re-pricing actions, broader discounting, and higher mark down levels” at higher levels than previously seen at the firm.

Not all analysts agreed with Buss' assessment. Camilo Lyon, a footwear and apparel analyst at Canaaccord Genuity, reaffirmed a “Buy” rating, indicating she believed that demand for the store's products would continue to be strong.

Lululemon Athletica has been a hot stock for some time now, largely due to company's rapid growth. On January 5 2012 the share price was hovering around $52, and as recently as January 8 2010, the stock was only trading at a little over $16.

An increase in share price of that significance over such a brief period of time could be indicative of a growth stock whose enthusiasm amongst its shareholders might have exceeded more realistic expectations. Given the sizable range in analyst share price prognostications, perhaps the “Hold” rating issued today by Credit Suisse is a wise position to adopt.

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