Athleisure and workout stocks have been on the move lately.
While workers heading back to the office is working against the group, rapidly rising cases of the COVID-19 delta variant is beginning to spark renewed mask mandates with the possibility of partial shutdowns now on the table. Beyond a possible renewal of the stay-at-home trend, we’re nearing back to school season which is good for the group.
Last week, Piper Sandler analyst Erinn Murphy said in a note that she’s upbeat about this year’s back to school season as in-person learning returns for many students and the enhanced child tax credit begins to hit parents’ bank accounts.
Murphy noted that mall-based athletic retailers including L Brands (NYSE: LB), Lululemon (NASDAQ: LULU), Nike (NYSE: NKE), and Under Armour (NYSE: UAA), “are all on pace to exceed 2019 sales levels” in what is sure to be a robust back to school shopping season.
Two of these stocks have seen a boost over the past week: L Brands is up 2.36% over the last five trading days, while Lululemon is up nearly 1% in the same timeframe. Nike is flat over the last week, while Under Armour shares have dropped 3.5%.
Lululemon shares gained as much as 4% on Wednesday after a bullish call from Goldman Sachs (NYSE: GS), which named the athleisure stock one of its top ideas for its “best in class” brand positioning.
Joule Financial’s Quint Tatro likes Lululemon as well, even despite the stock’s relatively high valuation given its solid fundamentals.
“The balance sheet for Lululemon is very attractive, about 29% debt-to-equity, so, a lot of room to grow if they do want to leverage that up a little bit,” Tatro, the firm’s chief investment officer, said.
On the other hand, Tatro says L Brands is “off the table” considering the company’s “ridiculously high amounts of debt and… negative book value.”
Matt Maley, chief market strategist at Miller Tabak, said he also likes Lululemon shares but also has his eye on another workout stock: Peloton (NASDAQ: PTON).
Peloton shares are down more than 10% over the last week with the stock getting a downgrade from Wedbush analyst James Hardiman on Wednesday from Outperform to Neutral and a price target that dropped fro $130 to $115.
Hardiman argued that sustaining the company’s growth in the post-pandemic era “will require the company to generate its own momentum through savvy marketing and compelling new products, as consumers will not only have the full complement of in-person workout options again available to them, but also an unprecedented and ever-growing list of digital/at-home choices.”
Maley notes that Peloton “definitely [has] an uphill battle on the fundamental side of things,” but added that the company could see some tailwinds depending on if the spread of the COVID-19 delta variant results in new lockdowns.
“This delta variant is becoming a problem in many parts of the world,” Maley said. “If it becomes a bigger problem here, you know, you might see a surprising rise in the stock.”
From a technical perspective, Maley says things look promising for a short-term trade.
The stock has begun to breakout of a bearish head and shoulders pattern, an encouraging sign that it’s at the beginning of a new uptrend.
Maley added that the stock has “already made a higher low and a higher high earlier, in late spring, early summer. What I’m looking at is the $127 level.”
The $127 level indicates 14% upside from Thursday’s closing price of $111.19.