Calling a company with a price to earnings ratio of above 80 at the time of writing a potential “value play” is where we’re at in today’s stock market. Valuations have soared as interest rates remain near-zero and are likely to continue to be for some time, and growth companies like Lululemon Athletical Inc. (NASDAQ:LULU) have seen impressive stock market returns since the beginning of the pandemic.
Lululemon’s stock price in many ways fully values the future earnings potential of this company as it exists today. That said, the value the company’s brand holds and the potential for new store openings given the company’s rock solid balance sheet should not be underestimated. Lululemon’s balance sheet is what I would call pristine, and given the fact that sales did not dip as much as expected through the pandemic, investors have now seen that this company’s cash flows are surprisingly stable, for a retailer.
As far as fashion retailers go, Lululemon would probably be my only pick for investors in this space. With more folks staying at home and looking for more comfortable workout clothes as this pandemic rages on, I expect earnings beats will continue to be on order for some time to come.
The fact that Lululemon beat earnings by such a wide margin this last time around (EPS of $1.16 vs. estimated $0.88) is likely just foreshadowing for what is to come, in my view. This stock holds excellent value for growth-oriented investors, particularly following the sharp dip we saw in this stock last week.
Invest wisely, my friends.