Lululemon Share Price Has Plenty of Room Left to Fall
After years of struggle, the downtrend in Lululemon (NASDAQ: LULU) shares is nearing its end. The Q2 release triggered a massive sell-off with the stock on track to hit long-term lows and arguably ultra-deep value levels. The stock is trading near $165, near critical support targets set during the height of COVID-19 fear, a level that discounts years of growth and market positioning.
The market for this stock has room to fall but is likely to rebound and confirm support at this level once again, signaling a buying opportunity for investors.
Until then, investors should not get their hopes too high for this retail stock. The forces dominating the market present a significant headwind that will likely push this market to $135 or lower before the sell-off is over. They include the institutional community, short-sellers, and analysts, whose trends are leading this market lower.
Sell-Side Forces Are Aligned Against Lululemon’s Retail Investors
The data tracked by MarketBeat reveals that 29 analysts rate the stock at a consensus of Moderate Buy. The sentiment has been steady over the preceding 12 months, but the price target has not.
The consensus price target, which forecasts more than 50% upside as of early September, has declined by over 40% in the last year, following recent revisions that led the market to the low end of $150.
That trend is unlikely to end now, and a lower low-end target should be expected before the end of calendar Q3.
Regarding the institutions and short-sellers, both are selling this stock. The institutional data shows the group as buying on balance for the trailing 12-month period, but the sequential data is less bullish. The institutions bought on balance in Q1 and Q2 but reverted to selling in Q3 and may accelerate their activity now that guidance has been reduced. They present a significant headwind to price action, owning about 85% of the stock.
Likewise, the short-sellers, which had been covering as a group early in the year, started selling again in the second half. Short interest wasn’t astronomically high leading into the release, about 6.7% as of mid-August, but is likely to have increased since and may continue to rise until there is better news from the company.
That may come with the Q3 or Q4 release, but those are still a long way off; there is plenty of time for Lululemon market sentiment to sour.
Lululemon’s technical setup foreshadowed a significant movement. The market had fallen below a critical, long-term support target, consolidating bearishly ahead of the release. Based on the magnitude of previous price action, the indication leading up to the release was a fall of 37% at the low-end range and as much as $120 at the high-end range to reach the $126 to $80 level by early 2026.
Those targets put this market near its 2018 highs, the top of a significant trading range, the launch pad for the last six years of stock market action.
Lululemon’s Stock is Falling Because the Guidance is Bad
Lululemon did not report a horrible quarter, with revenue growing by 6.8% and bottom-line outperformance. However, weakness in the U.S. segment and a guidance reduction for Q3 and the full-year period offset any present strengths.
The company continues to expect growth this year but has lowered its target to about 5% on a comparable basis, below the consensus estimate, and the earnings reduction is worse.
The company expects tariffs and the end of de minimis shipping to impact its earnings outlook by 1200 basis points, and the final tally may be worse.
The question is whether the brand can weather the storm until consumer trends shift or if some other brand will swoop in to take its position. On Holdings (NYSE: ONON) is undoubtedly a contender.
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