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Tough to Match Quality of Athleisure Pioneer By TipRanks


© Reuters. Lululemon: Tough to Match Quality of Athleisure Pioneer

Lululemon (LULU) knocked one right out of the ballpark with its incredible second quarter, sending shares soaring as high as 14.4% before retreating modestly.

The shares of this athleisure company are up 10% over the quarter before it revealed the amazing results. (See LULU stock charts on TipRanks)

The stock, which already had a stretched multiple going into the quarter, remains as stretched as ever. But, the multiple may not be as stretched due to its momentum, and the probability that the stock will outperform over the next 12 months, even though consumer spending might take a break from the increase in COVID-19 case numbers.

Lululemon shares are expensive, at 67.3 times trailing earnings. Quality is a premium in such a market. It’s hard to beat Lululemon in terms of quality right now. After the earnings report, I am still bullish on this stock.

Omnichannel Bets Paying off

The Vancouver-based athleisure retailer isn’t just a maker of fashionable yoga pants for women anymore. This has become much more. It is primarily responsible for “athleisure”, a fashion trend that has made major strides in menswear. It’s a strong brand that is showing no signs of slowing down.

Lululemon has the right mix of online and brick-and mortar, earning an A for execution on an omnichannel basis.

In Q2, sales growth was 56% on a constant currency basis. It’s amazing for a clothing retailer which has a market capitalization of $54 billion.

Lululemon’s strong brand has demonstrated that it is able to command huge margins and satisfy the growing demand for discretionary products. Lululemon has been able to withstand some very tough competition in recent months, which shows how strong brands can be.

Shares of LULU trade at 10.2x sales and 67.3x trailing earnings as of writing. This is not an indication of a retailer. That’s a good reason to put it on an ever-growing stock of tech stocks.

Lululemon is making great strides, as the direct-to consumer business model of Lululemon continues to yield impressive margins.

LULU stock could be worth much more because of its unmatched brand and continuing sales momentum.

Lululemon’s “stretched” multiple appears more sustainable than the market’s reward for growth.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, LULU stock comes in as a Strong Buy. There are thirteen Buy recommendations and three Hold recommendations among the 16 analyst ratings.

The average LULU price target is $465.81. Price targets for analyst analysts range from $410 per shares to $520/share.

Bottom Line

Despite the slew of positives, investors should be aware of the near-term risks that could cause LULU stock to fall into a downward dog.

Most notably, supply disruptions in Vietnam, which pressured Nike (NYSE:) on Monday, could be a source of concern.

Disclosure: Joey Frenette is not a shareholder in any companies listed at time of publication.

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