Is Lululemon’s Stock Still a Buy?

Over the past month, the stock gained over 2.5% while the S&P 500 lost ~0.52%, and the numbers are even  more impressive when you look at a longer time frame. YTD Lulu has gained 54% compared to 14.96% for the S&P 500. For the calendar year, Lulu has gained 44.46% compared to 16.35% for the S&P 500. Looking at the 3-year return, the stock demonstrates a staggering growth of 981% compared to 36.02% for the S&P 500.

At its close of 71.78 on November 30th, Lululemon is trading essentially even with its 50-day SMA of $71.84. It is 6.8% above its 100-day SMA of 67.18 and 4.8% above its 200-day SMA of $68.52.

E – Earnings and Revenue Have Been Excellent

Earnings have been excellent over the last five years and show no sign of slowing down. Lululemon continues to demonstrate impressive YoY sales growth, with 33.1% growth in 2011 over 2010.

2007       2008       2009       2010       2011
Revenue ($)in millions

269.9

353.5

452.9

711.7

1,001

Diluted EPS ($)

0.23

0.27

0.41

0.85

1.27

 

And it’s hard to not like a company that has beaten earnings for the last five quarters.

     7/2011      10/2011      1/2012      4/2012      7/2012
Revenue ($)in millions

212.3

230.2

371.5

285.7

282.6

Diluted EPS ($)

.26

.27

.51

.32

.39

 

T – Trends Support the Industry

Yoga has proven itself to have serious staying power as a major component of the fitness industry, and Lululemon manufactures products that are highly regarded by yoga enthusiasts. To justify bets against this stock in the past, shorts have argued that yoga may fade in popularity, yet this has proven to be an expensive bet with little evidence behind it . On the contrary, evidence from both Lulu’s individual performance and that of yoga’s growing popularity as a whole points strongly to robust performance within their market segment. The high-end fitness apparel industry also taps into an ideal customer base, one that is very enthusiastic about a fitness-oriented lifestyle and has the money to spend to outfit themselves accordingly. As Lulu expands into new regions and introduces additional lines of fitness apparel to its loyal customer base, there are no signs of the market for their products slowing down.

Conclusion

It’s hard to argue against a company with impressive revenue growth, a loyal customer base, and a high net profit margin (net profit margin TTM is 18.5%) in a hot sector of the fitness industry . And if that doesn’t seem enticing enough, Lululemon’s expansion opportunities, both in terms of new fitness apparel lines and into new international (and domestic) markets points to further opportunities for continued excellent stock performance.  Based on these factors, Lululemon should OUTPERFORM in the long-run.

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