Lululemon’s Stock: $140 To $200 In A Month, But Headed To $150 Again?

by Trefis Team
Lululemon Athletica
Rate   |   votes   |   Share

Despite almost an 11% decline in Lululemon’s (NASDAQ: LULU) stock since the beginning of this year, at the current price of $205 per share, we believe Lululemon’s stock has a significant downside. The key is the company’s stock is at about 160% higher than what it was at the beginning of 2018, a little over two years ago. Although the stock price has rebounded from levels of $140 from a month ago, there are chances that the stock may slide if signs of containment of the virus are not evident. Our dashboard What Factors Drove 161.1% Change In Lululemon Athletica Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Some of the stock price gain in the last two years is justified by the roughly 50.2% growth seen in Lululemon’s revenues from 2017 to 2019. This combined with a 1.6x jump in net income margin from 9.8% in 2017 to 16.2% in 2019 and a reduction in share count due to stock repurchases worth $0.7 billion helped earnings per share basis swell 161%. Although Lululemon has about $1.1 billion in cash as of the last report and around $330 million remaining under its share repurchase program, the company has suspended its repurchase program due to the outbreak of coronavirus.

Finally, Lululemon’s P/E ratio grew from about 41x at the end of 2017 to 47x at the end of 2019. While Lululemon’s P/E is down to about 42x now, given the volatility of the current situation, there is a significant additional possible downside for Lululemon’s multiple when compared to levels seen in the past year. After all, the P/E multiple was around 35x as recently as in late 2018.


How Is Coronavirus Impacting Lululemon’s Stock?

The Coronavirus crisis has hit the apparel industry hard. People are just not going to shop for luxury or even basic apparel products. Lululemon has shuttered stores in North America, Europe, Malaysia, Australia, and New Zealand, which is further impacting the company’s performance – especially since it remains unclear as to when it can open them again as the pandemic continues to spread. Additionally, Lululemon is one of a handful of apparel companies that have not furloughed employees and will continue to pay them through June 1, whether stores reopen or remain closed. This will likely improve its retention ratio but is likely to impact the company’s bottom line adversely. The company also didn’t provide any guidance for FY’20 as the management stated that the sales trend had changed dramatically, and the company was unable to determine the exact impact of COVID-19 on its business. The lone bright spot for the company in these difficult times is that the company’s stores in China (apart from the one in Wuhan) are operating normally. The company has around 38 stores in China.

If there isn’t clear evidence of containment of virus in the next couple of months, we believe the stock will see its P/E decline from current levels of 41x to 35x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $150.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.


See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!