3 Things to Know About Lululemon Before You Buy the Stock

Core Viewpoint - Lululemon Athletica reported first-quarter revenue and earnings that exceeded Wall Street estimates, yet its shares remain approximately 40% below all-time highs, indicating potential investment interest despite recent performance challenges [1]. Growth Potential - Lululemon's revenue grew by 10% in the latest quarter, which is a slowdown compared to previous years' growth rates [2] - Sales in China increased by 45%, highlighting significant growth opportunities in international markets, particularly with plans to open 5 to 10 new stores in the Americas and additional locations in China [2] - The company aims to achieve its "Power of Three x2" growth plan, targeting $12.5 billion in revenue by early 2027, representing a 30% increase from the previous fiscal year [3] Premium Status - Lululemon focuses on high-end apparel, maintaining a premium market position and controlling sales through its own e-commerce and physical stores, which enhances inventory and merchandising control [4] - The company has demonstrated strong profitability, with average gross and operating margins of 56.5% and 20.5% over the past five years, outperforming competitors like Nike [4] - High profitability allows for significant capital return to shareholders, with $559 million allocated for stock buybacks in the last fiscal year [4] Compelling Valuation - Lululemon's shares have declined approximately 9% over the past three years, contrasting with the S&P 500 and Nasdaq Composite's gains of 28% and 25%, respectively [5] - The stock currently trades at a price-to-earnings ratio of 25, near its lowest valuation multiple in the past decade, reflecting market pessimism [5] Investment Outlook - Given Lululemon's growth prospects and strong profitability, the current valuation presents a potential buying opportunity for investors [6] - The apparel industry remains highly competitive, with shifting consumer preferences posing risks, yet Lululemon's track record suggests it may outperform the market over the next five years [6]