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Are Lululemon’s Valuations Attractive?

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Mar. 23 2018, Updated 6:32 a.m. ET

Lululemon’s year-to-date stock performance

Lululemon Athletica (LULU) stock has delivered an above-average performance in the last two years. Its stock gained 21% in 2017 after rising 24% in 2016. However, the stock has been an average performer this year. Its share price has risen 3.7% to date as of March 20, 2018. In comparison, sportswear peers Nike (NKE), Columbia Sportswear (COLM), and Skechers (SKX) have gained 6.8%, 7.6%, and 6%, respectively. German rival Adidas (ADDYY) has risen an impressive 20% YTD, which reflects the strong demand for its products and its financial strength.

The S&P 500 Apparel and Accessories Index is up 4.7% YTD. It has outperformed the S&P 500 Index.

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Valuations

Lululemon’s stock is currently trading at a one-year forward price-to-earnings (or PE) ratio of 29.3x, operating close to the upper end of its 52-week PE range of 20.7x to 30x. The company is expensive in comparison to Nike at 27x, Columbia Sportswear at 24x, as well as Skechers at 17.5x.

However, Lululemon has a better near-term earnings potential as compared to Nike and Columbia Sportswear, whose earnings are projected to increase 6% and 10.5% over the next one year. Lululemon’s profit per share is expected to rise 22% over the same period. Skechers, however, has an even better earnings upside. Its EPS are expected to increase 29% over the next 12 months.

ETF investors seeking to add exposure to LULU can consider the First Trust Consumer Discretionary Alpha DEX ETF (FXD), which invests 0.9% of its portfolio in LULU.

Read the next part of the series to know about Wall Street’s view of the company.

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