Is Lululemon Athletica a buy?

It’s time to break down an apparel name that has taken the world by storm. Here is the breakdown on $LULU, otherwise known as Lululemon Athletica.

Current Price: $315.17

52/Wk High: $399.8965

52/Wk Low: $128.845

Market Cap: $41.1 Billion

Read below for the breakdown!

Lululemon Athletica ($LULU) is a major designer and manufacturer of athletic apparel and accessories.

Breaking the stock price down according to TREFIS (@trefis) data 70.6% of the stock price is based on the company’s Direct to Consumer segment.

Furthermore, 28% of the stock price is based on their retail stores segment, 0.4% on their wholesale, franchise, and other segment, and 1.0% is based on cash.

Throughout the pandemic, Lululemon has been forced into e-commerce at a much larger scale and management has done a solid job leading the company to significant growth.

While Lululemon has continued to produce solid numbers the stock has been a continual loser in recent months, falling from highs of $399/share in September to its current price just over $300/share, leaving investors wondering whether the stock is now a buy.

Digging into the most recent quarter Lululemon delivered a Q3 beat with an EPS of $1.16, better than the analysts EPS consensus estimate of $0.88. On a year over year basis, EPS improved 20.83%.

Revenues for the quarter were strong as well, increasing by 22% year over year to a solid $1.1 billion. It is important to note that direct to consumer net revenues represented 42.8% of revenues, much more than the same time 2019 level of 26.9%.

Taking on revenues by segment, net revenues increased 19% in North America and 45% internationally. As for online, direct to consumer net revenues increased a strong 94% throughout the quarter while comparable store sales decreased 17%.

Gross profit was strong as well, increasing 24% throughout the quarter to $627.4 million and bringing gross margin to 56.1%, representing a 100 basis point increase.

As for income, Lululemon reported an income from operations level of $204.9 million, representing a strong 17% increase on a year over year basis. Operating margin for the quarter unfortunately declined, dropping by 90 basis points to 18.3%.

Rounding out the quarter, Lululemon opened nine new stores throughout the quarter, bringing total stores to 515.

Management was upbeat about the quarter.

"Our third quarter results demonstrate the strength of lululemon across channels and markets, both in North America and around the world,” CEO Calvin McDonald said.

When it comes to guidance, management recently offered updates for investors.

“For the fourth quarter of fiscal 2020 compared to the fourth quarter of fiscal 2019, the company now expects the growth rate in net revenue to be at the high end of its mid-to-high teens expectation. The company also expects the growth rate in adjusted diluted earnings per share to now be at the high end of its mid-single digits expectation,” McDonald said.

Shifting into the balance sheet the numbers are solid.

Total Debt: None

Total Liabilities: $1.465 Billion

Total Assets: $3.628 Billion

Cash & Short Term Inv: $482 Million

On a valuation basis, Lululemon does trade at a premium.

Price to Earnings: 72.87x

Forward Price to Earnings: 45.81x

Price to Sales: 10.07x

Price to Book: 18.68x

Price to Cash Flow: 52.30x

Management has done a solid job.

Return on Equity: 29.23%

Return on Assets: 17.19%

Return on Invested Capital: 21.52%

Given the numbers the analysts are bullish with a mean price target of $416.76/share, representing a 34.85% upside.

It is also important to note that the high price target is $500/share, representing a 61.78% gain, while the low price target is $275.00/share, representing a -11.02% downside.

The big money is quite involved as well, with 85.86% of Lululemon being owned by institutions. Top holders include Fidelity Management & Research, The Vanguard Group, and T. Rowe Price Associates.

On a technical basis, Lululemon has been flat for months and moving to the downside. According to the six-month charts the MACD is moving to the downside within a range of -5.5 down to -8.22.

The six-month charts are also indicating an RSI of 28.08 and CCI of -178.9046, both of which are on the low end.

In short, Lululemon is a solid company with growing revenues, increasing demand, and a strong online presence that looks to only grow stronger.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.