Is it time to consider LULU? Here's what to keep in mind
Key takeaways:
Is it time to consider LULU?
Its current price-to-earnings ratio is lower than its average, but still higher than its peers. Trade with caution.
Its current price-to-earnings ratio is lower than its average, but still higher than its peers. Trade with caution.
What to look for in LULU's earnings report?
Profitability, growth of so-called power of three: men's digital and international and other innovation business
Profitability, growth of so-called power of three: men's digital and international and other innovation business
How to improve your ability to find clues in earnings reports?
The stock price of $Lululemon Athletica(LULU.US$ gained 90% in 2019, 50% in 2020 and 12.5% in 2021 but shrank 26% year to date this year.
It's the third largest sports and apparel maker in the world in terms of market capitalization.
It's the leader in yoga leggings and activewear……
Sports-loving investors may be familiar with lululemon company, which will report earnings after the market closes on June 2.
The price pullback of a stock, which has been a solid performer over the past few years, could easily be seen as an opportunity to buy the stock on dips.
However, we should never buy a stock just because the stock is falling, but when the intrinsic value is above market value or the company has the prospect of substantial growth in its business.
1. Analyst Opinions
Bloomberg
Lululemon's new long-term financial targets to double sales again to $12.5 billion in 2026 may hinge on its ability to continue executing in women's and in North America, while at the same time scaling growth and innovation across stores and online, international and men's business.
Shoes, resale, connected fitness with a two-tiered membership and personal care are additional opportunities. Innovation is spurring gains, as is an extra push on the so-called power of three: men's, digital and international.
Healthy store traffic, conversion that supports sales gains and adjacent-product expansions are catalysts. Supply-chain efficiencies help, but bottlenecks still exist in the supply chain, curbing margin.
Shoes, resale, connected fitness with a two-tiered membership and personal care are additional opportunities. Innovation is spurring gains, as is an extra push on the so-called power of three: men's, digital and international.
Healthy store traffic, conversion that supports sales gains and adjacent-product expansions are catalysts. Supply-chain efficiencies help, but bottlenecks still exist in the supply chain, curbing margin.
Morgan Stanley
Morgan Stanley analyst Kimberly Greenberger upgraded Lululemon Athletica to Overweight from Equal Weight with a price target of $303, down from $339.
The stock trades at a discount versus history due to growth deceleration and recession fears, Greenberger tells investors in a research note. However, these risks seem priced in and the business could be more resilient thru the headwinds than the market discounts, says the analyst.
Greenberger thinks the stock pullback creates an opportunity to invest in a 'quality asset on sale.' She calls Lululemon a 'long-term compounder.'
The stock trades at a discount versus history due to growth deceleration and recession fears, Greenberger tells investors in a research note. However, these risks seem priced in and the business could be more resilient thru the headwinds than the market discounts, says the analyst.
Greenberger thinks the stock pullback creates an opportunity to invest in a 'quality asset on sale.' She calls Lululemon a 'long-term compounder.'
Barclays
The growth story for LULU remains intact as the company continues to grow in an under-penetrated TAM.
We reiterate our Overweight rating and raise our price target to $450 (from $441) following the analyst day on April 20, 2022.
2. Where is LULU's valuation?
2. Where is LULU's valuation?
The valuation analysis tool on moomoo shows that LULU is trading below its own historical average PE level.
In addition, LULU enjoys a premium over its peers. Usually, it mostly happens when the company has more growth potential.
Comparing LULU's and $Nike(NKE.US$'s revenues and operating profits over the past four quarters, LULU's growth rate are stronger and more stable relative to Nike's.
Investors are sensitive to any signs of distress. In the quarter ending Oct. 31, 2021, revenue growth slowed, then investors fled, and stock prices began to fall.
Is it time to buy the dip? We still need to look for clues in the upcoming earnings report.
3. What to look for in LULU's earnings?
Profitability
Profit margin is an indicator that measures a company's profitability. It shows whether a company is doing well in turning its revenues into profits.
The gross margin tells us how efficient a company's production process is. Generally, the higher the gross margin, the more competitive a company is in its industry.
As we can see, LULU is doing well in terms of gross margin compared to NKE.
You may have seen several types of profit margins, among which gross margin, operating margin, and net margin are the most commonly seen ones. Each one of them reflects a company's business operation from a different dimension
Why do they matter and what factors influence them? Read our latest courses for more guidance.
Growth
Growth
Earnings reports are a medical exam of a company's past operations. Future growth is closely related to its future development strategy.
Lulu announced it's the Power of Three ×2 growth strategy on April 20 after the analyst day.
Growth strategy to 2026 includes plans to double men’s, double digital, and quadruple international revenues, while continuing to grow core areas of the business
Plan builds upon the company’s successful Power of Three formula to accelerate growth and drive value creation. - lululemon
Men's wears, digital sales, international expansion, these are the key metrics to watch in its earnings report. It will demonstrate the future potential of LULU.
Innovation
Besides, “LULU additionally is expanding its business models, incorporating a membership subscription model, rolling out the resale offering, and investing in Mirror studio partner content. We view these all as additive to the core business, increasing retention, providing key customer insights, and more touchpoints with its core customer.” Barclays said its equity research report.
Core business growth will determine the current pricing of its valuation, while additional expansion will affect the premium valuation of the price and thus the long-term resilience of the stock.
You might like: How to Read An Earnings Report
You might like: How to Read An Earnings Report
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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ProfitTogether : Good article
. Hope to see more if such in future.
ProfitTogether : Lulu's price point is also a good come back to start to take note of this company
KJ-stock : Great information
. I actually learned something. Thanks
dnkchong : Have faith with a health promoting brand, esp so when it is creative and constantly upgrading to tap into new markets
Geneva LL : i started to notice lulu since the girls are seeing lulu as something to show good taste and a healthier lifystyle. its branding strategy is so impressive.
Moomoo LearnOP Geneva LL: Indeed. Strong brand community is a prominent feature of lululemon.
steady Pom pipi : It has been included in my paper trading portfolio.
$long-term fishing (PFL2017082) $
steady Pom pipi steady Pom pipi: You can follow my paper trading portfolio.
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