(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Lululemon Athletica Inc.'s (LULU) stock has surged higher over the past year, with shares rising more than 113%, squashing the S&P 500 return of only 13.4%. But shares of the athletic apparel company are poised to fall by nearly 17% over the short term based on technical analysis, from its current price around $128.60.

Lululemon's stock jumped after it reported better than expected fiscal first-quarter 2019 results. Earnings topped estimates by nearly 20%, while revenue topped forecasts by over 5%. Shares have risen by 21% since the company reported the blockbuster results. But the steep rise has also pushed the company's valuation to an earnings multiple that is more than double its growth rate, making shares rich. (For more, see also: Lululemon Stock Stretches Toward High on Earnings.)

Bearish Technicals

The bulls need to pay attention to the technical chart because it is showing an unfilled gap which was created following the strong results, with the stock rising from $107 to $115. Additionally, the chart is demonstrating what appears to be the making of a head and shoulders technical reversal pattern. With the bearish reversal pattern and an unfilled gap, it would suggest that the stock could fall to about $107, a drop of 16.7%. 

The relative strength index has been trending lower despite the stock trading sideways recently, a bearish divergence, indicating momentum is exiting the stock. Additionally, volume levels have been steadily declining, suggesting buying interest may be waning. 

Not Cheap

It isn't just the technical chart showing signs of strain, based on analysts' forward estimates the fundamentals are stretched at current prices. The one-year forward PE ratio trades at 34 times fiscal 2020 earnings estimates of $3.73 per share, which is higher than that of Nike's 24.7. (For related reading, see also: Understanding Lululemon's Business Model.)

Slowing Growth

Lululemon's earnings are also expected to slow in fiscal 2020 to 15.5% from 24.6% in 2019. That means the stock is currently trading at an earnings multiple that is more than double its earnings growth rate, with a PEG ratio of 2.2. Like its PE ratio, Nike trades at a cheaper PEG ratio of 1.44, because Nike is forecast to grow its earnings at an even faster rate than Lululemon, with Nike increasing at 17% next year, which is faster than this year's expectation for only 10%. 

LULU PE Ratio (Forward 1y) Chart

There are plenty of reasons to support a pullback in Lululemon's stock over the short term. But if the company can continue to surprise investors by topping forecasts, then the stock may have much further to rise over the longer term. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.