Market Overview

lululemon Weakness Attributed to Discounting

Shares of lululemon Athletica (NASDAQ: LULU) sold off on Wednesday. Some attributed the weakness in shares to discounts offered on the company's website.

If that is the case, the weakness in shares may be unjustified. The sports/yoga apparel company is based in Canada; Canadians celebrate Boxing Day the day after Christmas, and retailers often offer discounts on this day. Consequently, some discounting from the retailer might be anticipated.

Shares tumbled as much as three percent and held onto losses into the early afternoon.

The move might have not been so surprising when viewed in the context of other retail names. The Gap (NYSE: GPS) was down nearly three percent as well, while Macy's (NYSE: M) declined about 2.50 percent. Reports indicated that consumers may have spent less this holiday season than expected.

lululemon has been a noteworthy stock in recent years given the company's tremendous performance. Year-to-date, shares are still up well over 55 percent.

However, the company trades at a lofty valuation with a P/E ratio above 45. For comparison, Nike (NYSE: NKE) trades with a P/E around 11.5.

If lululemon cannot continue its aggressive growth, shares may be in for a rough correction. With a short float above 20 percent, many traders are likely planning for such a scenario.

It has been rumored that famed short seller David Einhorn was among those betting against the company's stock, though Einhorn has never disclosed such a position. When asked about the rumors in the past, management has said it has not spoken directly to Einhorn.

Shares of lululemon traded near $73.80 on Wednesday.

Posted-In: News Hedge Funds Management Intraday Update Movers Trading Ideas General Best of Benzinga

 

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