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How Lululemon’s Valuation Compares to Competitors

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Dec. 14 2017, Updated 12:29 p.m. ET

Valuations summary

In this article, we’ll talk about Lululemon Athletica’s (LULU) current valuations and discuss its near-term earnings potential. We’ll also compare its valuations with other sportswear players. Lululemon is currently trading at a one-year forward price-to-earnings (or PE) ratio of 27.6x, trading close to its three-year average PE of 28.5x. The company is operating close to the upper end of its 52-week PE ratio of 20.7x to 29.2x.

Nike (NKE) and Colombia Sportswear (COLM) are trading at a slight discount to LULU. The two companies are valued at 26x and 24x, respectively. Under Armour (UAA) is trading at non-convincing valuations. The company has a one-year forward PE of 95x thanks to its deteriorating earnings.

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A look at earnings potential

As outlined, Lululemon trades at a premium to Nike and Columbia Sportswear. However, Lululemon’s valuations look far more appealing. The company is expected to post about an 18% jump in its earnings per share (or EPS) over the next 12 months (or NTM).

In comparison, Nike’s NTM EPS is expected to increase just 1.2%, while Columbia Sportswear’s EPS is projected to rise 4.8% during the period. Under Armour, on the other hand, is likely to witness a 65% decline in its earnings per share. Thus, Lululemon could be attractive during dips.

ETF investors seeking to add exposure to LULU can consider the PowerShares Russell Midcap Pure Growth Portfolio (PXMG), which invests 1.6% of its portfolio in LULU.

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