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Is It Too Late To Consider Buying Lululemon Athletica Inc. (NASDAQ:LULU)?


Today we’re going to take a look at the well-established Lululemon Athletica Inc. (NASDAQ:LULU). The company’s stock led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Lululemon Athletica’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out the opportunities and risks within the US Luxury industry.

What Is Lululemon Athletica Worth?

Lululemon Athletica appears to be expensive according to my price multiple model, which makes a comparison between the company’s price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Lululemon Athletica’s ratio of 40.25x is above its peer average of 10.47x, which suggests the stock is trading at a higher price compared to the Luxury industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Lululemon Athletica’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Lululemon Athletica?

NasdaqGS:LULU Earnings and Revenue Growth November 20th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With profit expected to grow by 60% over the next couple of years, the future seems bright for Lululemon Athletica. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in LULU’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe LULU should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on LULU for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for LULU, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we’ve spotted 2 warning signs for Lululemon Athletica (of which 1 is a bit unpleasant!) you should know about.

If you are no longer interested in Lululemon Athletica, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Valuation is complex, but we’re helping make it simple.

Find out whether Lululemon Athletica is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



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