This Is the Kind of Cash Yield You Usually Look For, So Why Not LULU?

Here is why we think Lululemon Athletica (LULU) is worth a look

• Not many stocks offer free cash flow yield of 5.4%, but LULU does
• 3-Year average revenue growth of 17.6% and operating margin of 22.7% show good fundamentals
• At PE of 13.4, this combo of cash yield, revenue growth, and margin could get noticed
• Compared to S&P, you get lower valuation, higher revenue growth, and better margins

Lululemon Athletica designs, distributes, and retails athletic apparel and accessories globally through company-operated stores and direct-to-consumer channels across multiple countries.

But do these numbers tell the full story? Read Buy or Sell LULU Stock to see if Lululemon Athletica still has an edge that holds up under the hood.

That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure

The Point? The Market Can Notice, And Reward

Here are some stocks that showed strong cash flow yield in mid 2024, and saw strong returns in the subsequent 12 months

• FFIV gained 70% in a year after showing a 6.9% free cash flow yield
• CSCO had 6.6% yield, and returned 50% in the next 12 months
• PM rose over 85% percent as the market noticed its 5.7% free cash flow yield and good underlying revenue growth

But Consider The Risk

That said, Lululemon isn’t immune to big drops. It fell nearly 92% during the Global Financial Crisis, which is a huge hit. More recently, the 2018 correction cut it by about 31%, and the Covid pandemic hit around 47%. Even the inflation shock in 2022 dragged it down roughly 46%. These numbers show that no matter how strong the fundamentals, Lululemon can take big hits when markets sell off hard. Risk is always there.

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read LULU Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.