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

Lululemon Athletica Inc. (LULU)  shares have been among the hottest over the past year, with shares more than doubling, rising by roughly 124%. The robust performance comes versus and S&P 500's rise of only 12.7%. The stock may be poised to pull back by as much as 13% in the coming weeks based on technical analysis and analysts’ estimates. 

The athletic apparel maker is expected to report first-quarter 2019 results on May 31 after the close of trading. Analysts are looking for the company to say earnings rose nearly 43% to $0.46 per share on revenue growth of 18.4% to $615.75 million. But full-year estimates for fiscal 2019 are not as rosy, with earnings forecast to climb by 19.2% to $3.09 per share, while revenue is seen growing by 14.2% to $3.025 billion. Shares trade at a lofty 35 times fiscal 2019 earnings estimates, nearly double the S&P 500's 18.5 forward P/E.

LULU Chart

LULU data by YCharts

Weak Technical Setup

Shares of Lululemon broke out in a big way at the end of March following its fiscal fourth-quarter results. Shares rose above the upper-end of a rising triangle technical pattern, a bullish continuation pattern, with the stock jumping from roughly $81 to its current price of approximately $107.20, a rise of approximately 31% in just about two months. The relative strength index (RSI) is suggesting shares may be overextended, The RSI is currently at 75, and has been trending lower despite shares continuing to rise, which is known as a bearish divergence. Additionally, the stock has been climbing on average levels of volume, which suggests there isn't an increase in buying interest, but perhaps merely a decline in selling interest. The next level of support for Lululemon is currently around $95.60, a drop of about 11% from current prices.

Analysts See the Price Falling

Analysts are surprisingly not optimistic on Lululemon and see the shares falling by about 12.8% to an average analyst price target of about $93.50, according to YCharts. In fact, of the 33 analysts covering the stock, only 55% rate shares a buy or outperform, which is down from 59% on March 31. Meanwhile, 39% rate shares a hold, up from 34% at the end of March. 

Not Cheap

Shares of Lululemon do not come cheap either, trading at 34 times fiscal 2019 earnings estimates, and 30.3 times fiscal 2020 estimates. But the problem here is that the high multiple comes on decelerating earnings growth, falling from 19.2% in 2019 to only 14% in 2020, to 9.1% in fiscal 2021. It leaves shares of the stock, with a PEG ratio of a pricey 2.16 for 2020. 

LULU PE Ratio (Forward) Chart

LULU P/E Ratio (Forward) data by YCharts

The results on May 31 will be significant for the direction for the stock, perhaps more than usual only because of the stock’s recent run-up. Whether shares continue to rise or fall will likely be determined by any commentary the company provides about its outlook.  

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.