These Popular Stocks Beat Q4 Expectations & Are Near 52-Week Lows

Lululemon LULU and DocuSign DOCU are two popular stocks that are starting to bounce off their 52-week lows, with investors hoping the momentum can continue after both companies exceeded their Q4 expectations on Tuesday evening.

LULU spiked over 3% in Wednesday’s trading session to $165 a share, with DOCU rising more than 2% to $48.

Rebound hopes are running high as Lululemon and Docusign stock are still trading more than 50% and 90% off their one-year peaks of $348 and $94 a share, respectively.

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Strong Q4 Results Lift Investor Sentiment

Lululemon’s Q4 sales were up nearly 1% year over year to $3.64 billion and topped estimates of $3.58 billion by 1.65%. Earnings of $5.01 per share came in 5.25% above Q4 EPS expectations of $4.76, despite dropping from $6.14 in the prior-year quarter.

International markets drove the apparel leader's strong Q4 results, signaling Lululemon’s global expansion is still working. Lululemon also emphasized an action plan focused on new products and improved customer experience, which investors often view as a positive strategic signal.

That said, Lululemon’s ability to meet Wall Street’s expectations has never been the issue; the negative spotlight has centered around softer sales forecasts and margin pressure from tariffs and markdowns.

Along with this, restoring the strength of its core North American market has been a concern, leading to the resignation of former CEO Calvin McDonald in January. Still in an ongoing search for its next CEO, two senior executives are serving as interim Co-CEOs for the time being, but Lululemon didn't announce any finalists or a timeline. Instead, the company highlighted that it added former Levi’s LEVI CEO Chip Bergh to its board of directors.

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As for Docusign, its Q4 sales rose nearly 8% to $836.86 million and topped estimates of $828.2 million by 1.05%. Earnings of $1.01 per share were up from $0.86 a year ago and topped Q4 EPS expectations of $0.95 by 6.32%.

Notably, Docusign also =surpassed $1 billion in Billings for the first time, a key metric that investors watch closely for the famous software cloud provider that automates and expedites the entire agreement process. Billings represent the total value of all customer contracts invoiced in the period, signaling future revenue and annual recurring revenue (ARR) growth.

Like Lululemon, Docusign’s stock hasn’t fallen because of its operational efficiency but because the market doubts the sustainability of its expansion.

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The Valuation Argument Remains Intact, Especially for Docusign

With it noteworthy that these popular stocks have topped the Zacks EPS Consensus for more than 10 consecutive quarters, LULU and DOCU are trading at glaringly reasonable forward price-to-earnings (P/E) multiples of 12X and 11X, respectively.

In comparison, their Zacks Industry averages are closer to the benchmark S&P 500’s 22X forward earnings multiple. LULU and DOCU have also traded near the often preferred price-to-sales (P/S) ratio of less than 2X, with Lululemon currently at this mark.

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However, Docusign looks undervalued relative to its growth, while Lululemon may be overvalued in this regard. To that point, when factoring in their long-term growth rate consensus as the denominator to their P/E ratios (PEG), DOCU is at the admirable PEG ratio of 1X or less, with LULU at 9.9X.

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Conclusion & Final Thoughts

Lululemon and Docusign stock may continue to benefit from short-term sentiment following their Q4 earnings beats. That said, their growth trajectories have trended toward the single digits compared to the double-digit growth that compelled investors in the past.

For now, LULU and DOCU land a Zacks Rank #3 (Hold). Optimistically, analysts project that Docusign could potentially exceed more than 10% EPS growth next year, as suggested in its promising PEG ratio. Such lofty forecasts are not apparent for Lululemon, but finding the right CEO could enhance its strategic expansion.

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This article originally published on Zacks Investment Research (zacks.com).

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