Lululemon’s 50x Search Surge

When Lululemon Athletica (LULU) released earnings last month, EVERYONE took notice.

According to our proprietary Trackstar database, in one day, financial pros searched the stock 50x more than their daily average of just two to four searches.

Shares skyrocketed 12.5% the next day on nearly 6x the typical daily volume.

That might seem odd for a stock trading at 32.2x forward earnings and 29.0x forward cash.

But with average compound annual revenue growth of 26.8% and EBITDA growth of 24.3% over the last three years, the stock may be cheaper than it sounds.

Lululemon Athletica’s Business

Vancouver-based Lululemon Athletica gained fame and fortune with its yoga pants, a staple of many women’s wardrobes.

Today, the company offers fitness and casual apparel for both men and women (though women’s apparel still accounts for nearly 3x the sales of men’s).

Although the majority of Lululemon’s sales come from North America, China has become the company’s biggest growth opportunity.

Source: Lululemon

Online sales account for nearly half the company’s revenues.

Financials

Source: Stock Analysis

Lululemon’s growth has been impressive. Sales have increased by double digits even during the company’s worst years.

Gross margins have steadily improved, while operating and profit margins took a hit last year.

Nonetheless, the company generates nearly $1 billion in cash from operations each year.

Capital expenditures rose from $230 million to $640 million in the past year as the company opened more stores around the world.

That said, Lululemon carries almost no debt and more than $1 billion in cash, meaning it funds its expansion through its operations.

Valuation

Source: Seeking Alpha

As we mentioned, LULU’s valuation isn’t particularly attractive, regardless of which metric you look at.

But it makes up for that in growth.

Growth

Source: Seeking Alpha

No competitor demonstrates the amount and consistency of growth Lululemon delivers on the top or bottom line.

As the company improves its inventory management, we can expect margin expansion to outpace revenue growth.

Profitability

Source: Seeking Alpha

LULU already has some of the best margins out there for both gross and net income.

And its returns on equity, assets, and total capital are spectacular.

Our Opinion 7/10

Lululemon is doing all the right things to maintain its growth trajectory.

But we’re concerned China is its biggest market expansion opportunity, given the geopolitical environment there.

Among its peers, LULU is the best stock of the bunch.

But apparel stocks are tricky even during bull markets. So if you like this company, make sure to lock in profits along the way.

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