Momentum Play: Lululemon Athletica

Lululemon Athletica, Inc. (LULU) just hit a new all-time high at $48.45 on the heels of the company’s excellent Q3 results from early September that included a solid 25% earning surprise. With the next-year estimate calling for 25% growth, the long-term picture looks good too for this Zacks #2 rank stock.

Although LULU sells high-end yoga and athletic apparel that might seem vulnerable to a weak consumer environment, its niche and growing popularity with wealthy customers has continued to fuel its growth. That showed up on Sep 10 when the company reported another strong quarter that sent shares jumping higher.

Third-Quarter Results

Revenue was up 56% from last year to $152 million. Earnings also came in strong at 30 cents, 25% ahead of the Zacks Consensus Estimate, lifting Lululemon’s average earnings surprise to 25% over the last four quarters.

Lots of Cash, No Debt

The company used the good quarter to further strengthen its balance sheet, with cash and equivalents more than doubling from last year to $178 million against no debt.

Looking forward, LULU aims to continue its expansion into new markets both domestically and internationally, with plans to open 25 new stores in 2011. It also has plans to continue growing its online business, where it has seen sharp sales gains over the last year.

Estimates

With LULU raising its guidance on the good quarter, the analysts were quick to follow suit, with the current year up 7 cents on the quarter to $1.22. The next-year estimate is up 5 cents in the same time to $1.48, a bullish 21% growth projection.

Valuation

With shares ripping higher over the last month, the valuation picture has gotten a bit hot, with a forward P/E of 38X against the industry average of 17X.

2-Year Chart

On the chart, shares have been trending higher for most of the last 18 months, recently jumping higher to a new all-time high on the solid quarter. But in spite of the nice gains, the stochastic below the chart is signaling that shares are trading well away from over-bought territory. Look for support from the trend line on any weakness, take a look below.

Read the July 12 LULU article here

LULULEMON ATHLT (LULU): Free Stock Analysis Report

About Michael Vodicka 49 Articles

Affiliation: Zacks Investment Research

Visit: Zacks Investment Research

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