LULU Stock Study (4-18-24)

I recently did a stock study on Lululemon Athletica Inc. (LULU, $344.86). Previous studies are here and here.

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. Lululemon sells its
     > products through more than 680 company-owned stores in
     > 19 countries, e-commerce, outlets, and wholesale accounts.

This medium-size [not for much longer] company has grown sales and EPS at rates of 20.9% and 24.2% per year since 2015 (FY ends 1/31). Lines are mostly up (EPS dips in ’18, ’21, and ’23), straight, and parallel. PTPM over the last 10 years leads peer and industry averages while ranging from 16.4% in ’23 to 22.6% in ’24 with a last-5-year mean of 20.3%.

ROE over the last 10 years is roughly equal to industry averages while outpacing peers, ranging from 16.8% in ’18 to 43.7% in ’24 with a last-5-year mean of 34.8%. Debt-to-Capital is zero through 2018. This remains much lower than peer and industry averages as the company maintains no long-term debt. The last-5-year mean is 25.2% (leases).

Current Ratio is 2.49 and Quick Ratio is 1.68. Value Line rates the company “A+” for Financial Strength and M* gives an “Exemplary” rating for Capital Allocation. M* also assigns Lululemon a “Narrow” economic moat.

With regard to sales growth:

• YF projects YOY 12.1% and 10.2% for ’25 and ’26, respectively (based on 29 analysts).
• Zacks projects YOY 11.9% and 10.8% per year for ’25 and ’26, respectively (12 analysts).
• Value Line projects 9.3% annualized growth from ’24-’29 (FY ends 1/31).
• CFRA projects 14.4% YOY and 14.9% per year for ’25 and ’24-’26, respectively.
• M* gives a 2-year ACE of 11.4% annualized growth.

I am forecasting below the range at 9.0%/year.

With regard to earnings growth:

• MarketWatch projects annualized growth of 12.9% and 13.2% for ’24-’26 and ’24-’27 (based on 35 analysts).
• Seeking Alpha projects 4-year annualized growth of 15.3%.
• YF projects YOY 10.8% and 11.9% for ’25 and ’26 (28 analysts), along with 5-year annualized growth of 12.3%.
• Zacks projects YOY 10.8% and 11.6% for ’25 and ’26, respectively (14), along with 5-year annualized growth of 20.0%.
• Value Line projects 15.8% annualized growth from ’24-’29 (FY ends 1/31).
• CFRA projects 13.5% YOY and 15.4% per year for ’25 and ’24-’26, respectively, along with a 3-year CAGR of 16.0%.
• M* projects long-term annualized growth of 18.8%

I am forecasting below the long-term-estimate range (mean of five: 16.4%) at 12.0% per year. My initial value will be the trendline $10.11/share because ’24 EPS ($12.20) is an 82.6% YOY spike and above historical trend.

My Forecast High P/E is 30. High P/E ranges from 37 (’16 and ’17) to 88.9 (upside outlier in ’21) over the last 10 years. The last 5-year mean (excluding ’21) is 54.7 and the last 5-year-mean average P/E is 42.8. I am forecasting well below the range.

My Forecast Low P/E is 25. Low P/E ranges from 20.7 (’19) to 37.7 (’23) over the last 10 years with a last-5-year mean of 30.9. I am forecasting just above the 10-year median low P/E of 24.7.

My Low Stock Price Forecast (LSPF) is the default of $252.80 based on $10.11/share initial value. This is 26.7% less than the previous close, 22.7% less than the 52-week low, and about equal to the 2022 low.

These inputs land LULU in the HOLD zone with an U/D ratio of 2.4. The Total Annualized Return (TAR) is 9.8%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.9%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 173 studies done in the past 90 days (51 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.9%, 15.8%, 42.0, and 27.5. I am lower across the board. Value Line projects a future average annual P/E of 25.0, which is much lower than MS (34.8) and lower than mine (27.5).

MS high / low EPS are $21.24 / $10.27 versus my $17.82 / $10.11 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $21.00/share. I am lowest of the three.

MS LSPF of $268.00 implies a Forecast Low P/E of 26.1: less than the above-stated 27.5. MS LSPF is 5.1% less than the default $10.27/share * 27.5 = $282.43 resulting in more conservative zoning. MS LSPF is still 6.0% greater than mine.

My TAR (over 15.0% preferred) is less than MS 18.6%. I believe MOS to be robust in the current study.

Regarding valuation metrics, Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.64. PEG is fairly valued per Zacks (an infrequent occurrence at 1.2) and 2.0 per my projected P/E.

I consider LULU to be “hitting it out of the park” relative to its industry and overall fundamentals. Analysts disagree about its valuation (e.g. overvalued per M* despite plenty of remaining growth potential versus Strong Buy per CFRA), but per relative P/E the stock has rarely been on sale like it is right now.

With some handicapping (i.e. low growth forecasts, trendline initial value, and very low Forecast High P/E), I have LULU a BUY under $323. With a forecast high price around $535, TAR should meet my 15% criterion around $267/share.