Valuation Scorecard: Stock Rating B-Positive (3/20/24)-Lululemon Athletica Inc (LULU).

To achieve average annual stock market performance of 9.0% over the next 6 years, Lululemon Athletica shares will need to reach $648. To achieve Upper quartile performance, Lululemon Athletica’s stock price will need to reach $762 by 2029. As reflected at the current price of $386, what future Lululemon Athletica operating performance is the market anticipating?

Executive Summary

• Price Target Research identifies Lululemon Athletica as having: high expected growth, high stability, average profitability, and above average financial strength. A big positive influence on Lululemon Athletica’s valuation is its superior Risk Profile.
• Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Lululemon Athletica Peer Group. Recent market returns have significantly outperformed the Lululemon Athletica Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Lululemon Athletica shares should reach a level of $825 by 2029 — an 13.5% per year total shareholder return. A 2029 stock price of $648 would reflect median performance and a price of $762 would be required to reach upper quartile performance.
• Lululemon Athletica’s past growth is very high. Historical growth has been very high relative to the Lululemon Athletica Peer Group and forecasted growth is relatively very high. Equity Growth, EPS Growth, Asset Growth, and Revenue Growth have all been superior. These factors have buoyed market perceptions of Lululemon Athletica. Lululemon Athletica’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Lululemon Athletica’s consensus growth expectations are in line with past growth.
• Profitability is slightly above average. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Risk Profile has been Lululemon Athletica’s biggest valuation strength. Lululemon Athletica’s risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, relatively low E.P.S. variability, Financial Strength is only average and earnings’ expectations are relatively very high. The debt/capital ratio has been relatively steady.

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