With a daily change showing a loss of -1.99% and a 3-month decline of -25.95%, Lululemon Athletica Inc (LULU, Financial) stands at a crossroads of valuation. Boasting an Earnings Per Share (EPS) of 12.2, investors are prompted to consider whether the stock is modestly undervalued. This article aims to delve into the valuation analysis of Lululemon Athletica, providing readers with a comprehensive understanding of its current market position.
Lululemon Athletica Inc (LULU, Financial), a leader in athletic apparel, has established its presence through a robust network of over 680 company-owned stores across 19 countries, complemented by a strong e-commerce platform. With a history dating back to 1998 and headquartered in Vancouver, Canada, Lululemon Athletica designs and markets high-quality athletic wear for a range of activities, including yoga and running. Comparing the current stock price of $366.55 to the GF Value of $491.81 suggests that the company may be modestly undervalued, offering a unique opportunity for investors.
Understanding the GF Value of Lululemon Athletica
The GF Value is a proprietary measure that represents the intrinsic value of a stock, calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line, presented on our summary page, indicates the fair value at which Lululemon Athletica's stock should ideally trade.
When the stock price hovers significantly above the GF Value Line, the stock may be overvalued, potentially leading to poorer future returns. Conversely, if the price is well below this line, it could indicate an undervalued stock with the prospect of higher returns. With a current market cap of $46.20 billion and a stock price of $366.55, Lululemon Athletica shows signs of being modestly undervalued, hinting at the potential for higher long-term returns relative to its business growth.
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Financial Strength of Lululemon Athletica
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Lululemon Athletica's cash-to-debt ratio of 1.6 ranks well within its industry, placing it in a better position than 73.62% of its peers in the Retail - Cyclical sector. This favorable ratio has earned Lululemon Athletica a financial strength rating of 7 out of 10, reflecting a sound balance sheet.
Profitability and Growth Prospects
Consistent profitability over time signifies a lower risk profile for investors considering share purchases. Lululemon Athletica's impressive track record of profitability over the past decade, combined with a solid operating margin of 22.95%, which surpasses 96.21% of its industry counterparts, underscores its strong financial performance. The company's profitability score stands at a perfect 10 out of 10.
Growth is a pivotal element in valuing a company, with long-term stock performance closely tied to it. Lululemon Athletica's average annual revenue growth of 31.1% is commendable, ranking higher than 90.26% of the companies in its sector. Moreover, its 3-year average EBITDA growth rate of 37% places it ahead of 82.89% of its industry peers, highlighting the company's robust growth trajectory.
ROIC vs. WACC: A Measure of Value Creation
Evaluating a company's value creation involves comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Lululemon Athletica's ROIC of 38.21 significantly exceeds its WACC of 10.41, indicating efficient cash flow generation in relation to the capital invested, thereby creating substantial value for shareholders.
Conclusion: Lululemon Athletica's Valuation Status
In summary, the stock of Lululemon Athletica Inc (LULU, Financial) appears to be modestly undervalued. The company exhibits a fair financial condition, robust profitability, and promising growth that outpaces a significant portion of the Retail - Cyclical industry. For a detailed exploration of Lululemon Athletica's financials, interested investors can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
