Is Lululemon Athletica Inc. (NASDAQ:LULU) Potentially Undervalued?

Today we're going to take a look at the well-established Lululemon Athletica Inc. (NASDAQ:LULU). The company's stock received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$479 at one point, and dropping to the lows of US$335. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Lululemon Athletica's current trading price of US$353 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lululemon Athletica’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Lululemon Athletica

Is Lululemon Athletica Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 7.3% below our intrinsic value, which means if you buy Lululemon Athletica today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $380.57, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Lululemon Athletica’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Lululemon Athletica generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Lululemon Athletica's earnings over the next few years are expected to increase by 38%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? LULU’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on LULU, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Diving deeper into the forecasts for Lululemon Athletica mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.