Headline risk aside, this downgrade stands on its own merits, for as we’ve pointed out many times in the past, Lululemon Athletica inc. (NASDAQ:LULU) is one pricey stock. Even today, with its stock down 9% from mid-March, the shares look overpriced at 35 times earnings, and an even more expensive-sounding 50 times free cash flow. With a growth rate now pegged at 24%, this suggests the stock could, conceivably, lose another 50% more of its market cap before finally beginning to approach value territory.
In short, a downgrade to only “sector perform” from RBC? That should be the least of Lululemon Athletica inc. (NASDAQ:LULU) shareholders’ worries.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica.
The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.
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