Does Lululemon Athletica Inc (NASDAQ:LULU) Have Room for More Growth?
Lululemon Athletica Inc (NASDAQ:LULU) is an apparel company that has consistently posted double digit sales growth over the last eight years and this trend is unlikely to change. The apparel company is on a massive growth trajectory and has regularly beat analysts’ expectations by quintupling its earnings per share over the previous 8-year period.
Lululemon has recorded double digits growth over the last eight years.
The company’s growth trajectory is predicted to continue into the future.
The company has exposure to high growth markets in Europe and Asia.
Unlike many other retailers, Lululemon does not have any debt, but instead has a net cash position of $447 million, which attests to the quality of the company’s management. The retailer continues to record massive sales growth in some of its new markets including Europe, China and the rest of Asia.
Despite the resignation of its Executive Vice President and Creative Director, Lee Holman, earlier this month, the company’s CEO promised that they would continue creating innovative products that intersect between fashion and function. Moreover, Lee will stay with the company up to December before leaving, which provides for a smooth transition period, especially given the upcoming holiday shopping season.
Lululemon has curved a niche for its apparel products in the sports industry by creating unique athletic designs that appeal to the modern consumer. One of the company’s main competitors is Under Armour Inc (NYSE:UA), which also produces niche athletic products.
The company recently dropped a patent infringement lawsuit against Under Armour after news emerged that Nike Inc (NYSE:NKE) was planning to increase its investment in sports bras and pants. This was a direct challenge to Lululemon given that the company prides itself on its unique designs for sports bras and pants, which account for most of its revenues.
The company’s management clearly anticipates that it will maintain its current growth momentum into the foreseeable future considering its ambitious target of increasing annual revenues to $4.0 billion by 2020 from the current $2.4 billion. As the company continues to expand into the Asian and European markets, albeit cautiously, it is likely to benefit from the significant growth potential in these two regions.
However, it is highly likely that the company’s future growth potential is already priced into the stock given that it is currently trading at a P/E ratio of 31.30, which is quite expensive. However, the stock is quite volatile and investors might be well advised to wait for future dips in order to add exposure to the stock.
The company also faces a significant threat from Amazon.com, Inc. (NASDAQ:AMZN), which is also keen on entering the athletics retail market by launching its own private label athletics brand.
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