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Why Strong Q2 Results Boosted Lululemon’s Stock

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Part 5
Why Strong Q2 Results Boosted Lululemon’s Stock PART 5 OF 7

Lululemon’s Stock Surged on 2Q17 Beat and Guidance Revision

Lululemon’s stock price performance

Lululemon Athletica’s (LULU) stock rallied after the company posted strong second-quarter results on August 31. The stock price closed at $61.69 on the next trading day, 7.2% higher than the previous day’s closing.

The company’s YTD (year-to-date) losses have been reduced to below 5%.

Lululemon’s Stock Surged on 2Q17 Beat and Guidance Revision

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In comparison, competitors Nike (NKE) and Sketchers (SKX) have gained 5% and 8.8% YTD. Under Armour (UAA) and Columbia Sportswear (COLM) are, however, also in the red. They’ve lost 44% and 0.2%, respectively, so far this year.

Lululemon has underperformed the S&P 500 Apparel and Accessories Index and the S&P 500 Index (SPX), which have gained 7.8% and 10.6%, respectively.

Valuations update

Lululemon’s stock is currently trading at a one-year forward price-to-earnings (or PE) ratio of 24.8x versus a three-year average of 28.3x. The company is trading in the middle of its 52-week PE ratio of 20.7x–33.7x.

Under Armour remained the most expensive sportswear stock with a 42.7x forward earnings multiple. Nike and Colombia Sportswear are trading at a discount to LULU. The two companies are valued at 22.1x and 20.7x, respectively.

While Nike and Columbia are cheaper than LULU, Lululemon has better near-term earnings potential. The company’s EPS are expected to improve 14% over the next 12 months (or NTM).

In comparison, Columbia Sportswear’s NTM EPS are projected to increase 3.4%, while Nike’s are likely to contract 3.9%. Under Armour is expected to deliver the worst performance. Its earnings are expected to contract 20.4% over the next year.

ETF investors seeking to add exposure to LULU can consider the PowerShares Russell Midcap Pure Growth Portfolio (PXMG), which invests 1.55% of its portfolio in LULU.

Read the next part of this series to learn about Wall Street’s reaction to LULU’s 2Q17 results.

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