Is Lululemon (LULU) a Good Stock to Buy before Q4 Earnings?

Retail company Lululemon LULU +1.35% ▲  is set to report its Q4 earnings results on March 17 after the market closes. Analysts are expecting earnings per share to come in at $4.78 on revenue of $3.57 billion. This compares to last year’s figures of $6.14 and $3.61 billion, respectively. Interestingly, LULU has a strong track record when it comes to beating earnings. In fact, it has done so in each of its last 16 quarters.

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However, investors will be trying to determine whether Lululemon’s slowdown is cyclical or structural. On the cyclical side, the company is facing very tough comparisons after several years of strong growth. Growth has also shifted geographically, with international revenue rising by 33% year-over-year and China Mainland sales climbing 46% in Q3, although these regions still represent only about one-third of total revenue.

Still, some analysts are worried that the slowdown could be structural, as newer competitors like Alo Yoga, Vuori, Athleta GAP +0.43% ▲ , and Nike NKE +1.50% ▲ are pushing harder into the premium athleisure space. Because apparel has very low switching costs and rivals are investing heavily in influencer marketing aimed at younger consumers, Lululemon may be losing cultural momentum, particularly in the Americas. As a result, a simple earnings beat will likely not be enough to push shares higher. Investors will want concrete evidence that the business can continue growing and remain relevant.

What Do Options Traders Anticipate?

Using TipRanks’ Options tool, we can see what options traders are expecting from the stock immediately after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. If this sounds complicated, don’t worry, the Options tool does this for you. Indeed, it currently says that options traders are expecting a large 10.5% move in either direction.

Is LULU Stock a Buy?

Turning to Wall Street, analysts have a Hold consensus rating on LULU stock based on one Buy, 17 Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average LULU price target of $202.87 per share implies 26.9% upside potential.

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