Lululemon Athletica Inc (LULU, Financial) recently showcased a daily gain of 2.74%, yet it has experienced a notable 3-month loss of -25.29%. With 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 (LULU) to uncover its true market potential. Read on for an insightful analysis of its intrinsic value.
Company Introduction
Lululemon Athletica Inc (LULU, Financial) is a frontrunner in the design, distribution, and marketing of athletic apparel, footwear, and accessories for a diverse clientele. Originating in 1998 and headquartered in Vancouver, Canada, Lululemon Athletica has flourished into a global brand, boasting over 700 company-owned stores across approximately 20 countries. The company's offerings include a range of products for leisure and athletic activities, such as yoga and running, alongside fitness accessories like bags and yoga mats. With a current stock price of $362.13 and a GF Value of $494.96, Lululemon Athletica presents an intriguing case for valuation analysis.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance estimates. If Lululemon Athletica's stock price is significantly below the GF Value Line, it suggests that the stock may be undervalued and potentially poised for higher future returns. Currently, with a market cap of $45.60 billion and a price of $362.13 per share, Lululemon Athletica (LULU, Financial) appears to be modestly undervalued.
Given this undervaluation, Lululemon Athletica's stock may offer a higher long-term return than its business growth alone would suggest. This potential for increased returns makes it an attractive consideration for value investors.
Financial Strength
Investors must scrutinize a company's financial strength to avoid the risk of capital loss. Lululemon Athletica's cash-to-debt ratio of 1.6 stands out in the Retail - Cyclical industry, indicating a robust financial position. With such a strong balance sheet, the company's financial strength is rated 8 out of 10 by GuruFocus.
Profitability and Growth
Consistent profitability is a hallmark of less risky investments. Lululemon Athletica has shown remarkable profit margins over the past decade, with a 22.95% operating margin that eclipses most of its industry peers. Furthermore, the company's profitability and growth indicators are impressive, with revenue and EBITDA growth rates outperforming a significant portion of the Retail - Cyclical industry.
ROIC vs WACC
An essential profitability metric is the comparison of a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Lululemon Athletica's ROIC of 38.21 significantly surpasses its WACC of 10.48, indicating the company's efficiency in generating cash flow relative to its invested capital and creating value for shareholders.
Conclusion
Overall, Lululemon Athletica (LULU, Financial) stock is currently modestly undervalued, which could spell opportunity for savvy investors. The company's solid financial condition and strong profitability, coupled with its impressive growth metrics, paint a picture of a resilient and thriving enterprise. For a more detailed financial overview, interested parties are encouraged to examine Lululemon Athletica's 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.
