Lululemon Has Better Near-Term Earnings Potential
Lululemon’s stock market returns
After registering stock market returns of 24% during 2016, Lululemon Athletica (LULU) fell ~7% this year. The company has underperformed sportswear giant Nike (NKE) (+6.5%) and footwear manufacturer Skechers (SKX) (+8.7%). However, Lululemon has done better than Under Armour (UAA (-40%) and Columbia Sportswear (COLM) (-5%).
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Currently, Lululemon is trading at $60.34, which is ~36% below its 52-week high price. Analysts expect its target price to rise ~3% to $61.97 over the next 12 months.
Valuations and earnings potential
Currently, Lululemon is trading at a one-year forward PE (price-to-earnings) ratio of 25.5x. It’s operating in the middle of its 52-week PE range of 20x–36.5x.
In comparison, Under Armour is currently trading at higher valuations of 44x. Nike and Columbia Sportswear are cheaper and trade at 22x–19x, respectively.
However, Lululemon has better earnings potential than its peers. The company’s EPS (earnings per share) is expected to rise 9% over the next 12 months. In comparison, Columbia Sportswear’s EPS is projected to expand 3.4% in the next 12 months, while Nike and Under Armour’s EPS will likely contract 3.5% and 20.3%, respectively.
ETF investors seeking to gain exposure to Lululemon can consider the PowerShares Russell Midcap Pure Growth Portfolio (PXMG), which invests 1.5% of its portfolio in Lululemon.