LULU Shares Sink 19% In A Day, Time To Buy The Stock?

We believe there are only a couple of things to fear in LULU stock given its overall Strong operating performance and financial condition. Taken together with its Low valuation, this makes the stock look Attractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $20 Bil in market cap, Lululemon Athletica provides athletic apparel and accessories for women and men through company-operated stores and direct-to-consumer channels across multiple countries worldwide.

[1] Valuation Looks Low

This table highlights how LULU is valued vs broader market. For more details see: LULU Valuation Ratios

[2] Growth Is Moderate

• Lululemon Athletica has seen its top line grow at an average rate of 15.8% over the last 3 years
• Its revenues have grown 9.2% from $10.0 Bil to $11 Bil in the last 12 months
• Also, its quarterly revenues grew 6.5% to $2.5 Bil in the most recent quarter from $2.4 Bil a year ago.

This table highlights how LULU is growing vs broader market. For more details see: LULU Revenue Comparison

[3] Profitability Appears Moderate

• LULU last 12 month operating income was $2.5 Bil representing operating margin of 22.9%
• With cash flow margin of 17.5%, it generated nearly $1.9 Bil in operating cash flow over this period
• For the same period, LULU generated nearly $1.8 Bil in net income, suggesting net margin of about 16.4%

This table highlights how LULU profitability vs broader market. For more details see: LULU Operating Income Comparison

[4] Financial Stability Looks Very Strong

• LULU Debt was $1.8 Bil at the end of the most recent quarter, while its current Market Cap is $20 Bil. This implies Debt-to-Equity Ratio of 8.8%
• LULU Cash (including cash equivalents) makes up $1.2 Bil of $7.5 Bil in total Assets. This yields a Cash-to-Assets Ratio of 15.4%

[4] Downturn Resilience Is Weak

LULU has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• LULU stock fell 46.1% from a high of $477.91 on 16 November 2021 to $257.51 on 24 May 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 8 December 2023
• Since then, the stock increased to a high of $511.29 on 1 January 2024 , and currently trades at $167.80

 
2020 Covid Pandemic

• LULU stock fell 47.3% from a high of $263.68 on 20 February 2020 to $138.98 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 21 May 2020

 
2008 Global Financial Crisis

• LULU stock fell 92.3% from a high of $29.00 on 22 October 2007 to $2.25 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 9 December 2010

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.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. 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.