lululemon athletica (NASDAQ: LULU - option chain) shares rose Thursday after the company reported a second-quarter profit of $9.24 million, or 13 cents per share, on revenue of $97.72 million. Analysts had forecast a profit of 10 cents per share on revenue of $88.20 million. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on LULU.

LULU opened Thursday at $22.49. So far the stock has hit a low of $21.97 and a high of $23.00. As of 11:25, LULU is trading at $22.28 up 0.67 (3.1%). The chart for LULU looks bullish.

Two days before its second-quarter earnings report, lululemon athletica inc. (NASDAQ: LULU) was hit this morning with a steep price-target cut. RBC slashed its price target on LULU from $47 to $30, noting "a 200 basis-point increase in our cost of equity assumption." The analysts tempered their bearish note by reiterating an Outperform rating on the shares.

The brokerage firm's downwardly revised target represents a 64% premium to the stock's closing price Monday. By contrast, the average 12-month price target on LULU is $39.72, according to Thomson Financial. This consensus estimate is 117% higher than yesterday's close, which seems to indicate that further price-target cuts could be in the offing, particularly if second-quarter earnings fail to impress.

During the past four quarters, First Call reports that lululemon has met or exceeded analysts' per-share profit expectations every time. However, it's safe to say that nobody on Wall Street was particularly impressed by LULU's last quarterly earnings report. Since the company announced inline earnings of 12 cents per share on June 2, its shares have shed 43% of their value. Even more compelling, institutional investors have reduced their stake in LULU by a net total of 5% since last quarter.

"While this has been an ugly period for equities, we believe an above-average risk/reward opportunity presently exists for the small-cap growth market," says Jim Oberweis, Jr., monoey manager and editor of The Oberweis Report.

He adds, "P/E valuations of our universe of high growth companies are now substantially below average. Most important, our research indicates that such periods are also opportune times to buy." Here, he offers a pair of retail ideas -- Guess? (NYSE: GES) and Lululemon athletica (NASDAQ: LULU).

"While it can be difficult to seize such an opportunity in the face of overwhelming pessimism, those who unemotionally understand the math of historical valuations should reap the rewards of seeing opportunity in the current difficulty.

"In each case, uncertainty at the time led to a large market decline that resulted in stock valuations substantially below historical averages. In virtually every period in which average P/E's for high growth stocks have dropped sharply below the mean, the economic outlook was bleak. It is exactly that pessimism and uncertainty that causes investors to relentlessly sell, creating cheap valuations.

According to the New York Times, "Kmart said yesterday that it would remove all jewelry advertised as 'lead free' from its shelves after workers at lead monitoring programs who tested the pieces found that some actually contained high concentrations of the metal."

One charm labeled lead-free was 52% lead. What is interesting here is that it raises questions about how much responsibility companies have about products that they source from third-party manufacturers.

Lululemon Athletica Inc. (NASDAQ: LULU) ended up embroiled in a minor scandal after a New York Times piece found that products the company was selling (the material in question was manufactured by a third party) -- labeled as containing seaweed -- actually contained no seaweed. While it sent the stock down as much as 9%, the share price ended up closing higher on the day of the story. Lululemon has since put out a press release refuting the New York Times claim, saying that its products actually do contain what they say they contain.

The legal issues could be murky. But these companies know that consumers aren't going to want to shop at stores in which products are labeled in a misleading way, and so they're taking steps to evaluate manufacturers' claims -- before the New York Times does.

The New York Times reports that a short-seller of Lululemon Athletica (NASDAQ: LULU) shares suggested that it test its clothes for seaweed content. The result -- 0% -- proved profitable for the short-seller. Lululemon Athletica shares have lost 10% of their value in premarket trading.

Why would the seaweed content of Lululemon Athletica's products affect the value of its stock? Because Lululemon claims that its clothes are 24% seaweed fiber. On being found out, Lululemon CEO Dennis -- call me Chip -- Wilson's comment was priceless: "If you actually put it on and wear it, it is different from cotton. That's my only test of it."

• Due to accelerating losses at its American consumer-lending unit, HSBC Holdings PLC (NYSE: HBC) said it would take $3.4B in charges during its Q3, the Wall Street Journal reported. Despite the charges, the company said its Q3 operating income was up compared with the prior year due to revenue growth in the group.
• NYSE Euronext Inc (NYSE: NYX) CEO John Thain is not on the first short list of candidates being considered for the Citigroup Incorporated (NYSE: C) CEO position, according to an inside source, the Financial Times reported.

• Lululemon Athletica Inc (NASDAQ: LULU), a standout performer on Wall Street, is reportedly under fire for potentially false claims of its VitaSea clothing line, which the company says is made from seaweed fiber supplied by SeaCell. According to lab tests, the New York Times reported there was no significant difference in the mineral levels between regular cotton T-shirts and Lululemon's VitaSea fabric.