lululemon athletica (NASDAQ:LULU) was cut to Hold from Buy with an unchanged price target of $500 per share at HSBC on Monday, with analysts saying the performance gap is likely to narrow over 2024 and 2025.
With Lululemon's share significantly outperforming the sector in the past and its shares having a great run in 2023, HSBC believes the company's current valuation does not look compelling.
"Looking at the past 15 years of data (2008-22), it has delivered a constant FX sales CAGR of 27%, three times the average of 9% sales CAGR delivered by Nike, adidas and Puma combined. In more recent years, lululemon sales grew at 32% in 2022 (vs peers at 12%) while it is likely to finish 2023 at 21% growth (vs peers at 4%), on our estimates," said the analysts.
"However, this outperformance seems to be well reflected in the share price, which hit a lifetime high of USD511.29 on 1 January 2024, after being one of the best-performing stocks in our coverage in 2023, up c.60%," they added.
Going forward, the analysts noted a lack of short-term catalysts and the fact they expect the sales growth outperformance gap to narrow in the face of impending growth moderation.