Investors should buy Lululemon shares because the retailer will recover from its recent product mistakes, according to Stifel Nicolaus, which raised its rating on the company to buy from hold.
Lululemon's shares are down 20 percent this year. The company disappointed investors in late March when it gave first-quarter guidance below Wall Street expectations.
Stifel's Jim Duffy said the lack of bright colors in the retailer's spring line is leading to the lackluster results.
"Valuation assessment suggests the reset in LULU shares is presenting opportunity for long-term investors. Following a merchandising misstep in early spring and disappointing 1Q guidance shares are hovering near historical trough P/E multiples," the analyst wrote in a note to clients Tuesday. "We see potential for fundamental improvement to drive multiple expansion yet see risk contained to any downward estimate revisions."