Lululemon stock is about to hit the rally button For those of us on the sidelines, watch for shares to continue consolidating with a strong potential for a catch-up play to develop in the coming weeks.

Having rallied with the rest of the market into the end of the year, the first few weeks of 2024 have been markedly quiet for shares of Lululemon Athletica Inc (NASDAQ: LULU). To be fair, there had been some warning signs. Teams from both Wells Fargo and Raymond James had downgraded their rating on the athleisure giant in the final weeks of last year on the back of what they saw as an overheated rally that was starting to look frothy.

While they managed to land a beat on the headline numbers in their December earnings report, lighter-than-expected forward guidance understandably spooked investors and seemed to justify the cautious downgrades. Still, the stock was able to rally through the end of the year, but a 12% drop since then, while the S&P 500 index has gained 7%, is not a good look.

However, this divergence isn't looking like it's going to continue much longer. Despite multiple attempts in the past week, the bears have been unable to take the stock below the $450 level, and with every failed attempt, the likelihood of an upward move grows. This is still the same Lululemon that was hitting all-time highs less than two months ago, and it's the same Lululemon that's rated as a Buy by the vast majority of analysts.

High expectations

Using MarketBeat's research tools, we can see that of 30 total ratings, an overwhelming 80% are in the Buy camp. In the past month, the teams at KeyCorp, Truist Financial, and Raymond James have all reiterated their bullish stances and the stock carries a street-high price target of $610. From where shares closed on Wednesday, that's pointing to a further upside of some 30%, a figure that's only gotten more attractive in recent weeks as shares have dipped.

The continued underperformance is a funny one to understand, especially after the company walked back on December's light-forward guidance by boosting its outlook for Q4. But the retail industry as a whole has been trading softly in recent weeks. Take Nike Inc (NYSE: NKE), for example; at -15%, their shares are down nearly double that of Lululemon's since the end of December, while several key retail ETFs are also starting the year on the back foot.

The bears will point to Lululemon's price-to-earnings (PE) ratio, which at 58 is well above the 45 it started last year at. Considering the company's revenue and earnings growth haven't accelerated as much as expected since then, you can understand their point. Lululemon can't really afford anything other than solid upside beats in its earnings reports this year to justify the current share price. But with management already boosting forward guidance, there's every reason to think they'll come through on this.

Bullish sentiment

Considering consumer sentiment has swung well over to the bullish side on the back of inflation cooling and hopes rising for a rate cut, you have to be bullish on consumer stocks like Lululemon, which are almost considered a luxury item. Indeed, with the bears running out of steam this week so far, it's starting to look like Wall Street is thinking the same thing. You can't help but get a feeling that we're looking at a solid entry opportunity here, especially for those of us who missed out on the end-of-year run in December.

For those of us considering getting involved, watch for Lululemon shares to continue consolidating after January's slide, with the strong potential for a catch-up play to develop in the coming weeks. Shares have formed a solid base along the $460 level, and with the stock's relative strength index (RSI) still close to oversold levels, there's a ton of room to the upside should a rally start.