Lululemon Athletica (LULU): Slowing Growth, But a 41% ROE Powerhouse

Core Viewpoint - Lululemon Athletica Inc. (LULU) is identified as a potentially undervalued stock with strong financial performance, impressive revenue growth, and a solid balance sheet that supports further expansion [2][13]. Financial Performance - Lululemon has a current market capitalization of approximately $19.02 billion and an enterprise value of about $19.62 billion [10]. - The company generated a total revenue of around $10.9 billion and an operating income of approximately $2.50 billion, resulting in an operating margin of about 23% [10]. - Lululemon's net income stands at roughly $1.79 billion, with a net margin of 16% [10]. - The company has a return on equity (ROE) of approximately 41% and a diluted EPS of 14.68 [10]. Valuation Metrics - The intrinsic value to price (IV/P) ratio for LULU is 1.30, indicating that its intrinsic value is estimated to be around 30% above its current market price, suggesting a margin of safety for investors [4][10]. - The Acquirer's Multiple is reported at 7.90, which, along with the IV/P ratio, suggests that the stock may be undervalued relative to its strong cash generation [10][16]. Cash Flow and Capital Returns - Lululemon's free cash flow for the trailing twelve months (TTM) is approximately $1.17 billion, with a free cash flow yield of about 5.5% [10]. - The company prioritizes reinvestment in growth and shareholder returns through aggressive share repurchases totaling around $1.46 billion, resulting in a buyback yield of approximately 6-7% [10][11]. Balance Sheet Strength - Lululemon maintains nearly $2 billion in cash, moderate leverage with total debt of about $1.6 billion, and ample working capital of approximately $2.1 billion, providing a strong cushion against retail cycles [8][10]. Market Position and Growth Potential - Lululemon is recognized as a high-margin consumer brand with strong pricing power and enviable returns on capital compared to peers in the apparel and retail sector [7]. - The company is well-positioned for growth, particularly in international markets, especially in Asia, which offers a long runway for sales and margin expansion [16].