Lululemon Athletica Inc. (LULU:NASDAQ)
Price at Preparation: $403.19 (Mar 22nd, 2024)
What they do
Lululemon Athletica Inc. (LULU:NASDAQ) is engaged in the design, distribution, and retail of technical athletic apparel, footwear, and accessories. The Company’s segments include company-operated stores and direct to consumer. It’s apparel assortment designed for a healthy lifestyle include items such as pants, shorts, tops, and jackets for athletic activities such as yoga, running, training, and other activities. It also offers apparel designed for being on the move and fitness-inspired accessories. Its technical athletic apparel, footwear, and accessories, which are sold through a chain of company-operated stores, direct to consumers through e-commerce, outlets, sales to wholesale accounts, license and supply arrangements, recommence, and sales from temporary locations. It also offers in-home connected fitness and associated content subscriptions through lululemon Studio. It operates stores in the United States, Canada, Australia, the United Kingdom, South Korea, Germany and others.
At Theta Bandits, we are always looking to bring fresh ideas with assets on the move for an assortment of reasons that could provide the potential for a nice return on your portfolio. Today’s pick is Lululemon Athletica Inc. (LULU) who last week reported their quarterly earnings – let’s see what happened.
Opinion
Lululemon Athletica Inc. (LULU) reported their Q4 2023 earnings report (ER) on May 21st, 2024 and while they beat their estimates their forward guidance put some doubt into traders, subsequently driving the stock down massively. We are looking at this drop as more of an opportunity. Their 12-month average price target (PT) is currently posted at $488.79 USD (+21.23%) and a high estimate of $570.00 USD (+41.37%) with analysts giving the stock 22-buy, 5-hold and 5-sell ratings. There usually is volatility in the near term post the ER, so let us be patient and wait for a better opportunity. This stock does not offer dividends like some of our other Top Pick Tuesday selections, so we are dealing with straight price action on this pick. Since LULU is quite expensive, this pick could be capital intensive – it is prudent to adjust your strategy to fit your personal risk tolerance.
Plan
Looking at the visual aid graph below, there are two methods which stand out as possibilities to take advantage of the drop. In both cases we will need time for this to work.
The conservative approach will look at the support lines below the current price of $403.19 USD. Namely: $402.11, $387.56, $374.88 and $359.58 (all USD). The last support noted has been a point of strong support throughout the year as can ben seen in the graph and highlighted in yellow. If holding a position already and the price broke this line, it might be time to cut the position and exit the play. Legging in and buying shares on confirmation of bouncing off the support levels indicated above is an effective way to dollar cost average (DCA) the total position while looking to regain upside toward the PT indicated above.
The aggressive approach involves using Cash Secured Put (CSP) Options as discussed previously. The reason is because this stock does provide a good premium, but since a single contract involves 100 shares, this can be capital intensive if assigned. As always be aware of your risk tolerance and available capital to set aside in case of a worst-case scenario. Using the same information from the conservative approach above – we will use the identified strong support of $359.58. Selling a single $360.00 USD CSP option for a date close to LULU’s next ER (May 30th, 2024) provides credit on the sale that can allocated towards the $36,000.00 USD needed should those shares be assigned (the reason this is capital intensive), while also giving the trade the time required to work.
For more content consider our Theta Bandits Discord community, a hub for traders to ask questions, share ideas and strategies like the approaches above for various tickers daily. Traders in this community could potentially attack positions using these or other methods discussed in previous Top Pick Tuesdays.
RISKS
In the plan above we have listed two approaches with mitigations to protect the position while the trade is active. However, make sure to plan your trade with-in your risk tolerance and give it the time it needs to be successful, while setting and updating limits to mitigate risk and set profit and/or exit points for the position as necessary.
Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.
