Trading Strategies For Lululemon Stock Before And After Q3 Earnings

Zinger Key Points
  • Analysts estimate Lululemon will report earnings of $1.96 per share on revenues of $1.81 billion.
  • If Lululemon receives a positive reaction to its earnings print, a bull flag pattern may dominate.

Lululemon Athletica, Inc LULU is set to print its third-quarter financial results after the market closes on Thursday.

When the Vancouver-based apparel giant printed its second-quarter results on Sept. 1, the stock gapped up over 11% to start the following trading day but ran into a group of sellers who caused Lululemon to close down 3.75% from the opening price.

For the second quarter, Lululemon printed a big beat, reporting adjusted earnings per share of $2.20 compared to the $1.86 consensus estimate. The company reported revenues of $1.87 billion, which beat the average estimate of $1.77 billion.

For the third quarter, analysts estimate Lululemon will report earnings of $1.96 per share on revenues of $1.81 billion.

Leading up to the event, seven analysts weighed in with adjusted price targets, with each firm raising their price target. The lowest new price target comes in at $395 and the highest at $542.

The reaction Lululemon receives post-earnings is likely to be the deciding factor on whether the stock will trade in bullish or bearish territory for the time being. From a technical standpoint, Lululemon looks set to soar higher due to a possible bull flag pattern on the daily chart.

Of course, holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. Options traders, particularly those who are holding close dated calls or puts, take on extra risk because the institutions writing the options increase premiums to account for implied volatility.

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The Lululemon Chart: Lululemon reversed into an uptrend on Oct. 13 and has since made a consistent series of higher highs and higher lows. Lululemon’s most recent higher high was printed at the $386.70 mark on Dec. 2 and the most recent confirmed lower low was formed on Tuesday at $366.39.

  • Most recently, during Lululemon’s climb higher, the stock has printed a possible bull flag pattern, with the pole formed between Nov. 21 and Dec. 2 and the flag forming over the trading days that have followed.
  • If Lululemon recieves a positive reaction to its earnings print, the measured move of the bull flag is about 13.5%, which suggests the stock could surge toward $415.
  • Over the course of Wednesday and Thursday, Lululemon has printed a double inside bar, with all the trading action taking place within Tuesday’s trading range. The pattern leans neutral in this case because although Lululemon is trading higher overall, the flag formation has caused the stock to trade lower most recently.
  • If Lululemon suffers a bearish reaction to its earnings print and opens Friday’s session under the eight-day exponential moving average, the bull flag will be negated and a downtrend is likely to confirm.
  • Lululemon has resistance above at $383.24 and $412.49 and support below at $367.79 and $347.

Photo via Shutterstock.

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