Lululemon’s shares could be poised for upside. How to capitalize on it using options
International demand is accelerating for the apparel retailer, and the stock presents a compelling risk-reward setup.
TL;DR
- Lululemon is shifting from a U.S. retailer to a global brand as North American growth expectations decrease.
- International markets, especially China, are becoming key growth drivers, with China revenues up 46% year-over-year.
- The company shows capital discipline through share buybacks ($189 million in Q3) and inventory management.
- Lululemon trades at a discount to its industry peers in terms of P/E ratio and expected growth, despite higher net margins.
- A bullish options strategy is proposed: selling a Feb $210/$195 put vertical for a $5.40 credit, with a maximum reward of $540 and maximum risk of $960.
- Key risks include U.S. execution and leadership transition, while upside potential is favored by normalizing expectations and global demand.