LULU Stock Study (1-25-23)

I recently did a stock study on Lululemon Athletica Inc. (LULU) with a closing price of $311.21.

M* writes:

     > Lululemon Athletica Inc. designs, distributes, and markets
     > athletic apparel, footwear, and accessories for women, men,
     > and girls. Lululemon offers pants, shorts, tops, and jackets
     > for both leisure and athletic activities such as yoga and
     > running. The company also sells fitness accessories, such
     > as bags, yoga mats, and equipment.

This medium-sized company has grown sales and EPS at rates of 17.3% and 16.9% per year since 2012. Lines are mostly up (EPS dipped in ’14, ’17, and ’20), straight, and parallel. PTPM over the last 10 years has fallen from 27.8% in ’12 to 21.3% in ’21 with a last-5-year average of 20.3%. This beats peer (stated as BOOT, BURL, and VSCO) and industry averages.

ROE over the last 10 years has ranged from 16.8% (’17) to 39% (’19) with a 5-year average of 30.6%: slightly better than industry averages and solidly better than peer averages. Debt-to-Capital was zero through 2018. The 5-year average is now 15.1%—much lower than peer and industry averages—while the company maintains zero long-term debt

I assume long-term annualized sales growth of 15% based on the following:

• CNN Business projects 27% YOY and 28% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• YF projects YOY 28.3% and 13.7% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 28.3% and 13.2% for ’23 and ’24, respectively (13).
• Value Line projects 15.7% growth per year from ’21-’26.
• CFRA projects 29.5% YOY and 20.6% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 18.6%

I assume long-term annualized EPS growth of 15% based on the following:

• CNN Business reports ACE of 27.3% YOY and 20.7% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• MarketWatch projects annualized ACE of 21.5% and 20.3% from ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects annualized growth of 16.4% and 13.6% for ’23-’25 and ’23-’26, respectively (15, 11, and 2 analysts for ’23, ’25, and ’26).
• YF projects YOY 27.3% and 15% for ’23 and ’24, respectively, and 21.9% per year for the next five years (29).
• Zacks projects YOY 27.2% and 14.4% for ’23 and ’24, respectively, and 20% per year for the next five years (13).
• Value Line projects annualized growth of 18.2% from ’21-’26.
• CFRA projects 28.4% YOY and 21.5% for ’23 and ’22-’24, respectively, with 3-year annualized EPS growth of 28%.
• M* gives a long-term ACE of 20.2% per year.

My Forecast High P/E is 34. High P/E has ranged from 37 (’15 and ’16) to 88.9 (upside outlier in ’20) over the last 10 years. The last 5-year average excluding ’20 is 50.9 and trending higher.

Forecast Low P/E is 24. Low P/E has ranged from 20.7 (’18) to 36 (’21) over the last 10 years. The last-5-year average is 27.8.

My Low Stock Price Forecast is $218.40. This is sticking with default and 30% below the previous closing price.

All this results in an U/D ratio of 3.1, which makes LULU a Buy. Total Annualized Return is 14.5%.

While 14.5% is a solid total return, I believe PAR (based on Forecast Average, not High, P/E) to be more realistic. I think PAR of 10.9% is acceptable for a medium-sized company especially if it has a decent chance of beating my estimates.

Despite originally using an 18% growth projection as a number on lower end of analyst long-term forecasts (including all the long-term EPS forecasts), I discounted to 15% for the final study. This provides some margin of safety (MOS).

As a more comprehensive MOS check, I looked at Member Sentiment (MS) averages of 189 studies over the past 90 days. Projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 16.3%, 16%, 41.8, and 26.6, respectively. I’m lower on all inputs—especially with regard to the P/E range. MS average P/E is 34.7 compared to my 29 (and Value Line’s 32). If I exclude stock studies with projected low price of $50 or lower, which I consider unreasonable, then MS projects a low price of $218.94, which is roughly equal to mine.

I feel confident buying LULU up to $319/share.