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Next Year’s Gonna Be Great!

Stock (Symbol) Stock Price

Lululemon Athletica (LULU)

$65

Data is as of Expected to Report Sector

June 19, 2013

N/A

Retail & Restaurant

Sharek’s Take
David SharekLululemon’s gotten past the recall of its see through pants, and now has another issue to deal with. LULU’s CEO is stepping down. This news caused the stock to fall (as you can see in the one-year chart below) because the current CEO has an eye for style and also building a retail juggernaut. Yes, she will be missed, but I’m sure the company will move in. I think its the Lululemon brand that’s more important than any individual.
 
Now that the recall is done, profits should rebound in a big way in 2014. If LULU makes $2.50 to $3.00 in 2014, the stock is now selling for 22 to 26 times profits. LULU currently has a P/E of 33, and if it gets a 33 P/E and makes $2.75 then the stock will be $91 — 40% higher than this quarter. Next year’s gonna be great for Lululemon.
One-Year Chart
LULU_2013_Q2First, the 0% profit growth last quarter was because of the recall, and this was known well in advance. You can see the big drop LULU had because of the CEO resignation on the right of the chart. With a P/E of 33, LULU is selling around its fair value (thus it is in black).
Earnings Table
LULU_2013_Q2_EPSLast quarter, LULU saw flat profit growth and sales growth of 21%. I like that sales growth.
 
Lululemon beat by 2 cents last quarter, but this estimate was lowered a bunch due to the recall.
 
Annual Profit Estimates
have now stabilized. Normally LULU increases estimates, maybe that will happen next quarter.
 
Quarterly growth looks poor the next three quarters, then we have easy comparisons which will mean exceptional profit growth around a year from now. Look to 2014.
Fair Value
LULU_2013_Q2_FVLULU has little upside right now, but upside to 2014 is excellent. Next year’s gonna be great!
Ten-Year Chart
LULU_2013_Q2_10yrYou can see LULU is down but not out. Actually, this looks like a good buying opportunity for long-term investors. But LULU isn’t on sale so this may not be a good time to buy.
Power Ranking Bottom Line
Growth Portfolio

16 of 21

Lululemon is past the clothing recall, and now is down because its CEO is resigning. I feel the ship will continue to sail forward and this remains a top retail stock to own — for the long term. LULU is currently fairly valued, but has excellent upside to 2014.
 
LULU is ranked 16th of 21 positions in the Growth Portfolio Power Rankings. I’ll look to put it in the Aggressive Growth Portfolio as we get closer to 2014.
Aggressive Growth Portfolio

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