Lululemon Athletica Inc (LULU, Financial) has recently shown a daily gain of 5.37% and an impressive 3-month gain of 23.53%. With an Earnings Per Share (EPS) of 7.9, investors are keen to understand whether the stock is fairly valued in the current market. This article delves into a detailed valuation analysis to determine the intrinsic worth of Lululemon Athletica's shares.
The question of whether Lululemon Athletica (LULU, Financial) is fairly valued is critical for investors. By examining the GF Value and other financial metrics, we aim to provide a comprehensive analysis of the company's stock value. Read on to explore the factors that contribute to Lululemon Athletica's valuation.
Company Introduction
Lululemon Athletica Inc. stands as a prominent player in the athletic apparel and accessories market. Founded in 1998 and headquartered in Vancouver, Canada, the company has expanded its reach to over 670 company-owned stores internationally. Lululemon Athletica (LULU, Financial) offers a diverse range of products for various athletic and leisure activities, including yoga and running, sold through its stores, e-commerce platform, outlets, and wholesale accounts. With a current stock price of $489.64 and a Fair Value (GF Value) of $523.02, the company's market capitalization stands at $65.20 billion, indicating a close alignment between its market price and estimated fair value.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated by considering historical trading multiples, an adjustment factor based on past performance and growth, and future business performance estimates. For Lululemon Athletica (LULU, Financial), the GF Value suggests that the stock is fairly valued. This assessment is based on historical trading patterns, the company's previous business growth, and projected future performance. When a stock's price aligns closely with the GF Value Line, it suggests that investors can expect returns that are commensurate with the company's growth rate.
Because Lululemon Athletica is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Assessing a company's financial strength is crucial to avoid the high risk of permanent capital loss. Lululemon Athletica's cash-to-debt ratio of 0.93 places it above 63.8% of its peers in the Retail - Cyclical industry. With an overall financial strength rating of 7 out of 10, Lululemon Athletica exhibits a fair financial condition. This assessment is vital for investors considering the purchase of Lululemon Athletica shares.
Profitability and Growth
Consistent profitability over the long term signifies lower investment risk. Lululemon Athletica has maintained profitability for the past decade, with a notable operating margin of 22.12%, which ranks higher than 95.93% of its industry counterparts. The company's strong profitability is reflected in its perfect score of 10 out of 10. Additionally, Lululemon Athletica's growth prospects are robust, with an average annual revenue growth of 27.8%, surpassing 88.47% of companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate of 25.2% further underscores the company's solid growth trajectory.
ROIC vs. WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) provides insight into a company's value creation. Lululemon Athletica's ROIC of 31.22% significantly exceeds its WACC of 11%, indicating the company's efficiency in generating cash flow relative to the capital invested. This positive spread suggests that Lululemon Athletica is creating substantial value for its shareholders.
Conclusion
Overall, Lululemon Athletica (LULU, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.21% of companies in the Retail - Cyclical industry. For a more detailed examination of Lululemon Athletica's financials, interested investors can review the 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.
