Lulu's Fashion Lounge: Down More Than 38% From Its High - It's Time to Buy

Lulu's Fashion Lounge Holdings Inc. (LVLU) is a customer-driven, digitally native women's fashion brand. The shares of the Chico, Calif.-based company declined 18% on its stock market debut on Nov. 11, 2021, after the company raised $92 million in an initial public offering priced at the low end of the marketed range. The stock has declined 38.5% in price since hitting its 52-week high on Nov. 19, 2021, and 20.8% over the past month and is currently hovering near its all-time low of $8.77.

However, LVLU's Chief Executive Officer David McCreight said, "the low-end pricing of the IPO and first-day drop won't affect the company's plan to pay down debt."

Furthermore, considering the company's robust financials, solid growth prospects, and favorable analysts' ratings, the stock could deliver solid price performance in the coming months.

Here is what could shape LVLU's performance in the near term:

Strong Financials

During the third quarter, ended Oct. 03, 2021, LVLU's net revenue increased 95% year-over-year to $106.32 million. Its operating income increased 122.7% from its  year-ago value to $9.06 million. The company's net income surged 8.7% from the prior-year quarter to $2.28 million, while its EPS increased significantly year-over-year to $0.13 over this period. In addition, its cash and cash equivalents came in at $40.92 million for the nine months ended Oct. 03, 2021.

The Street expects LVLU's revenues and EPS to rise 27.1% and 122.2%, respectively, year-over-year to $472.11 million and $0.6 in fiscal 2022.

Consensus Rating and Price Target Indicate Potential Upside

Each of the eight Wall Street analysts who rated LVLU rated it Buy. The 12-month median price target of $20.13 indicates a 116.9% potential upside. The price targets range from a low of $14.00 to a high of $33.00.

POWR Ratings Reflect Solid Prospects

LVLU has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LVLU has a B grade for Growth, Quality, and Sentiment. LVLU's solid earnings and revenue growth potential is consistent with the Growth and Quality grade. In addition, optimistic analyst estimates are in sync with the Sentiment grade.

Of the 46 stocks in the B-rated Specialty – Retailers industry, LVLU is ranked #11.

Beyond what I stated above, we have graded LVLU for Value, Stability, and Momentum. Get all LVLU ratings here.

Bottom Line

LVLU reported solid earnings and revenue growth in its last quarter despite uncertainties related to the pandemic and global supply chain issues. In addition, given the analysts' expectation of EPS and revenue growth, the company should exhibit strong price performance in the coming months. So, we think it could be wise to scoop up its share at the current price level.

How Does Lulu's Fashion Lounge Holdings Inc. (LVLU) Stack Up Against its Peers?

LVLU has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Specialty - Retailers industry with A (Strong Buy) ratings: Destination XL Group Inc. (DXLG), The Cato Corporation (CATO), and The Tile Shop Holdings Inc. (TTSH).

Note that DXLG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

LVLU shares were unchanged in premarket trading Tuesday. Year-to-date, LVLU has declined -9.29%, versus a -3.08% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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