Is Lululemon Getting Left Behind?

| About: Lululemon Athletica (LULU)


The company is fairly valued while having great near- and long-term earnings growth expectations.

There appears to be increased competition in the space with Dick's Sporting Goods encroaching in the territory.

ISI Group believes Lulu could be a take out target at $50.

The last time I wrote about Lululemon Athletica Inc. (NASDAQ:LULU) I stated, "Due to the bullish technicals, best in class ROA, and excellent ROE I will be pulling the trigger here right now. But remember what they say about bottom picking, "bottom pickers may get stinky fingers."" After writing the article, the stock dropped 0.8% (but increased as high as 1.51%) versus the 2.12% gain the S&P 500 (NYSEARCA:SPY) posted. Lululemon Athletica Inc. is a designer and retailer of technical athletic apparel operating primarily in North America and Australia.

On March 27, 2014, the company reported fourth quarter earnings of $0.75 per share, which beat the consensus analysts' estimates by $0.03. In the past year, the company's stock is down 42.64% and is losing to the S&P 500, which has gained 17.96% in the same time frame. Since initiating my position back on August 13, 2013, I'm down 32.02%. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my growth portfolio.


The company currently trades at a trailing 12-month P/E ratio of 23.37, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 19.89 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.24), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 18.79%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 18.79%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 16.56%. Below is a comparison table of the fundamental metrics for the company when I wrote all articles pertaining to the company.

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Price ($)


Fwd P/E

EPS Next YR ($)

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On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity and investment values of 28.5%, 32.3% and 25%, respectively, which are all respectable values. In this particular instance, I will skip the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio a stock does not have to have a dividend.

The really high return on assets value (28.5%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings (for comparison purposes, Lulu has the highest ROA of mid-cap or higher companies in the textile-apparel clothing industry followed by Gildan Activewear Inc. (NYSE:GIL), which sports an ROA of 15.8%, and Ralph Lauren Corporation (NYSE:RL), which sports an ROA of 13.0%).

The really high return on equity value (32.3%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Lulu has the highest ROE of mid-cap or higher companies in the textile-apparel clothing industry followed by Hanesbrands Inc. (NYSE:HBI), which sports an ROE of 27.5%, and Carter's, Inc. (NYSE:CRI), which sports an ROE of 24.8%).

Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

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Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory with a current value of 41.77, but with no trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($44.63), I'm looking at the 50-day simple moving average (currently $48.04) to act as resistance, and $41.03 to act as support for a risk/reward ratio, which plays out to be -8.07% to 7.64%.

Recent News

  1. Dick's Sporting Goods (DKS) said on its earnings call that the women's athletic apparel project is producing comparisons in the low teens. This project can provide some fierce competition for Lulu in the near future.
  2. Analyst Omar Saad of ISI Group provided a bit of speculation for the company saying that it can be a takeover target for VF Corp (VFC). Mr. Saad provides a takeout target of $50 and says that Lulu can boost earnings at VF Corp by about $1.05.


Whether or not Lulu is getting taken out, an investor should not be jumping into the stock with that being the thesis, you should want to be in the stock if you believe in the turnaround story. Fundamentally, the company is fairly priced based on next year's earnings estimate and on future growth potential while still expected to grow earnings at a high clip for the near- and long-term perspective. Financially, there is no dividend to hide out, but the financial efficiency ratios are great. On a technical basis, the risk is about equal to the reward and my gut-feeling is towards the downside for now. Due to the reduced earnings estimates for 2015, no dividend, and the increased competition from Dick's, I'm not going to be putting additional capital to work in the name, there are better places to make money.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long LULU, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Textile - Apparel Clothing, Canada
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