Why LULU Is Trading at 3-Year Low Multiples
Lululemon’s stock price performance
Lululemon Athletica’s (LULU) stock plunged 23.4% a day after the company released its 4Q16 results on March 29, 2017. The stock closed at $50.76 on March 30, touching its lowest level since December 2015.
The company is now sitting at a YTD (year-to-date) fall of 20%. In comparison, competitors Nike (NKE) and Columbia Sportswear (COLM) have risen 9.6% and 1% YTD, respectively. Under Armour (UAA) is also in choppy waters, having fallen 32% YTD.
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Wall Street’s view on LULU
As discussed in the previous section, Lululemon was downgraded by multiple brokerage companies after it missed on its 4Q16 earnings and issued weak guidance.
Wall Street, however, continued to have a neutral view on the company. Analysts have rated the stock a 2.5 on a scale of 1 (strong buy) to 5 (sell). The yoga and leisure apparel retailer was rated a 2.4 before its 4Q16 results release.
Peers Foot Locker (FL), Nike (NKE), and Columbia Sportswear (COLM) have received better ratings of 1.9, 2.1, and 2.2, respectively. Under Armour (UAA), however, is among the worst-rated stocks at 2.8.
LULU is covered by 35 Wall Street analysts. Of these analysts, 43% have recommended “buys” on the stock, and 51% have recommended “holds.” Just 6% of analysts think that the stock is currently a “sell.”
In comparison, 3% and 5% of analysts suggest “sells” on the stocks of Nike and Columbia Sportswear, respectively, while none suggest “sells” on Foot Locker. Under Armour has 15% “sell” recommendations.
Lululemon’s stock is currently trading at a one-year forward price-to-earnings multiple (or PE) of 22x, compared to its three-year average of 28x. Under Armour continues to be the most expensive stock in the sportswear peer group, with a next-12-month earnings multiple of 47x. Nike and Columbia Sportswear are valued similarly to LULU and are trading at PEs of 22.4x and 21x, respectively.
ETF investors seeking to add exposure to LULU can consider the iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF), which invests 1.2% of its portfolio in LULU.