With its exposure to e-commerce and bricks-and-mortar retail, it’s no surprise that Lululemon Athletica Stock (NASDAQ:) has been a success. This athletic apparel retailer continues to exceed expectations.

Its business performance could continue to be strong into 2022. Are shares likely to rise in value over the next 12 months due to this? But not so quickly. Like many high-flying names, over the past eighteen months this has been a stock boosted in no small part by a “growth at any price” investing philosophy.

In the near-term, share prices will continue to fall as monetary tightening is accompanied by the possibility of higher interest rates. They have actually begun to fall in recent days.

That’s not to say a tremendous tumble is in store. Yet with the prospect of LULU making a move back toward its low from earlier this year (around $300 per share), I am bearish on it at today’s prices (around $401.50 per share). TipRanks shows Lululemon Athletica stock charts.

Market Sentiment Changes for LULU

As seen from its most recent quarterly results (released on September 9), Lululemon continues to “crush it.”

Analysts had predicted $1.3 billion. Sales were actually well above the actual figure of $1.5 million. The earnings beat it by a wide margin ($1.65 per share versus $1.19 consensus). This gave LULU stock a double digit increase in price.

Still, once we factor in what’s emerged in the weeks since its blowout earnings release, these strong numbers aren’t going to save the day. Bond yields have been rising as the U.S. Federal Reserve continues to taper.

Stocks like Lululemon that are heavily based on the future performance of their stock will continue to fall as this trend continues. If trends continue, strong quarterly performances could be a boon. Yet as the risk results in the coming quarters disappoint, the company’s underlying performance could end up dialing up the pressure.

What could Lululemon do to get more?

What will happen if LULU shares continue to fall? Given that its underlying business remains strong, I don’t expect shares to crater to a bargain basement price anytime soon.

It is likely that the premium it trades will not be lost to its rivals. Nike (NYSE:), and Under Armour, (NYSE:). (UAA) Both trade at forward prices-to-earnings multiples of 31.0x & 33.5x respectively. That is considerably lower than this stock’s current P/E ratio of 44.4x.

Both peer companies, also highly-priced, could be at greater risk of their high valuations being reduced. Both could trade for high P/Es instead of trading in the 30s.

Lululemon’s forward PE could drop to around 40x after this reassessment. Analyst consensus is that the stock will reach its ceiling at $300 per share if the in-progress market sale-off ends.

The Views of Analysts on LULU Stock

TipRanks gives LULU stock a strong buy consensus rating. It has 17 analysts rating it as a Buy. 3 analysts give it a Hold and 0 gives it a Sell.

As for price targets, the average Lululemon price target is $469 per share, implying around 16.85% in upside from today’s prices. Price targets for analysts can range anywhere from $410 per Share to $520 Per Share.

Bottom Line: Solid Business, Rich Valuation

Besides for valuation concerns, others may point out that it’s not set in stone that Lululemon will continue to deliver results far above analyst expectations. There are several factors that suggest the possibility of Lululemon delivering disappointing results over the next quarters. 

So, competition for home fitness products is increasing, not just from Nike or Under Armour. Peloton (NASDAQ) is also looking for a share of premium apparel in the home-fitness industry.

More importantly, as the market changes its tune about growth stocks, and LULU stock remains richly priced, there’s little need to “buy the dip” after its recent move lower. Lululemon is still far from a fair valuation.

Disclosure: Thomas Niel had no position at the time this article was published.

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