Should You Buy Lulu’s Fashion Lounge (LVLU) IPO Stock?

In Oct. 2021, e-commerce company Lulu's Fashion Lounge filed for its IPO, disclosing a turn to profitability during the COVID-19 pandemic. Now, the company has priced its IPO. It's expected to begin trading on Nov. 11 under the ticker symbol “LVLU” on the Nasdaq. Is Lulu's a good investment? What’s Lulu's stock forecast for 2025?

Lulu's operates an online store for women's apparel and accessories. The company is focused on Millennial and Gen Z women. Lulu's is backed by H.I.G., the Canada Pension Plan Investment Board, and Institutional Venture Partners.

Lulu's is expected to start trading on Nov. 11. Typically, shares making their public stock market debut start trading between 10:00 a.m. and 2:00 p.m. ET.

Lulu's raised $92 million by offering 5.75 million shares at $16 each. Previously, the company marketed the shares for $16–$19 apiece. The net proceeds from the offering will be used to redeem preference shares, repay debt, and for general corporate purposes. Goldman Sachs, BofA Securities, Jefferies, and Baird are the IPO's joint book-running managers. The underwriters have the option to purchase an additional 0.9 million shares at the IPO price.

Lulu's reported revenue of $172.5 million in the first half of 2021, marking a rise of about 23.6 percent YoY (year-over-year). The company’s revenue fell by 32.7 percent YoY in 2020. Lulu's posted a net income of $7 million in the first half of 2021, compared with a net loss of $15.5 million in the same period a year prior.

Lulu's is seeking a valuation of about $650 million. Based on its pro forma market cap, Lulu's 2020 price-to-sales multiple is 2.6x. To compare, Nike and Lululemon Athletica have next-12-month EV-to-sales multiples of 5.5x and 8.7x, respectively.

The outlook for Lulu's stock looks promising. In 2019, the apparel and footwear industry in the U.S. formed a $369.8 billion market, according to Euromonitor. While the market decreased in 2020 to $285.7 billion due to the COVID-19 pandemic, it's anticipated to grow 7 percent compounded annually to reach $395.2 billion by 2025. The online penetration in the U.S. apparel industry is anticipated to reach 49 percent by 2025 from 25 percent in 2019.

Based in Chico, Calif., Lulu’s was founded in 1996 by mother and daughter Debra Cannon and Colleen Winter. Lulu's began as a vintage store, but in 2008, it transitioned to an exclusively online company. The company, which doesn’t run physical retail stores, serves about 2.5 million active customers and has 7.5 million social media followers.

Like several fast fashion brands, Lulu’s releases hundreds of new styles every week and takes a data-driven approach to determine what to keep producing. Personal stylists and a bridal concierge service are also available on the website. Overall, Lulu’s is a good investment, as consumer spending is expected to increase in the next few months with the economic recovery.