[Note: LULU fiscal year ends in January]
We believe that Crocs’ stock (NASDAQ: CROX) is currently better valued than Lululemon’s stock (NASDAQ: LULU). Lululemon’s current price-to-EBIT ratio of 25x is much higher than levels of 5x for CROX. So does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than LULU: Pay Less To Get More From CROX has more details – parts of which are summarized below.
1. Revenue Growth
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Lululemon’s Revenue grew at an average rate of 25% over the last three years as compared to Crocs’ Revenue growth of 31%. And, if we look at the revenue growth over the last twelve-month period – CROX’s 61% revenue growth is higher than the 34% growth for LULU’s revenues. It should be noted that both the companies’ performances were impressive given the challenging macroeconomic backdrop, most notably the continued disruptions in global supply chains during the first quarter, particularly. However, both companies are currently performing worse than the market overall with Lululemon’s stock declining around 24% year-to-date (YTD) and Crocs’ stock falling 55% YTD, due to the rising recession threat. For comparison, the S&P 500 is down 18% YTD.
- Crocs is involved in designing, manufacturing, and marketing footwear for men, women, and children under the Crocs brand. Crocs boasted of tremendous growth in the first quarter of 2022 with sales rising 44% year-over-year (y-o-y) to $660 million and adjusted earnings up 38% at $2.05 per share. Although consumer spending may slow this year, Crocs remains a growth-oriented company. Moreover, the company acquired the casual footwear brand Hey Dude recently, which is seeing rapid growth among younger consumers. As Crocs’ existing distribution channels are plugged into Hey Dude, the stock could see some significant growth in the years to come.
- Lululemon’s business includes designing and selling athletic and casual apparel. The company’s revenue grew 32% y-o-y to $1.6 billion and adjusted earnings were up 28% y-o-y to $1.48 per share.
2. Operating Income Growth
Crocs’ operating income growth also compares favorably when compared to LULU in the last twelve months and the last three years period. Better revenue growth for the former led to higher operating income.
The Net of It All
Crocs has seen higher growth in revenues and operating income than Lululemon in the last twelve months and three years. Yet, it has a comparatively lower price-to-EBIT ratio when compared to LULU. This comparative underperformance in Lululemon’s revenue and operating income growth compared to Crocs reinforces our conclusion that LULU stock is expensive compared to CROX. We think this gap in valuation will eventually narrow over time to favor the less expensive name.
It is also helpful to see how its peers stack up. Check out how Lululemon’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
With inflation rising and the Fed raising interest rates, Lululemon has fallen 24% this year. Can it drop more? See how low can LULU stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||4%||-17%||76%|
|Trefis Multi-Strategy Portfolio||7%||-17%||227%|
 Month-to-date and year-to-date as of 7/20/2022
 Cumulative total returns since the end of 2016