Lululemon Revenues Rise 22% – Is It A Buy Now?
Back in September I showed you 1 Reason To Avoid Lululemon stock to protect your retirement portfolio.
Today, I give an update and answer – Lululemon Revenues Rise 22% – Is It A Buy Now? You can read the past articles in full using the links above.
But if you don’t want to; here’s a quick recap of the them before we get to today’s article.
1 Reason To Avoid Lululemon
It’s Enormously Overvalued
Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.
But frankly none of those matter with Lululemon (LULU) due to its huge valuation.
Before I get to that though I need to tell you what Lululemon does.
Has it seemed like more and more woman – and men – have been wearing leggings in recent years?
That’s because they have.
In large part due to Lululemon popularizing the wearing of leggings for working out.
Lululemon creates, produces, and sells athletic apparel for men and women… It did such a great job that its now got a $42.2 billion market cap as of this writing which is up huge this year.
So far this year its stock price grew from $233.42 per share on January 2nd, 2020 to $330.38 as of this writing.
This is an increase of 41.5% this year so far.
And it’s also up enormously from its 2020 lows during the first stages of the coronavirus pandemic in March from $138.98 per share.
This is an increase of 138% from its low this year to its current share price.
It’s great for shareholders… But if profits and cash flows don’t rise in line with the rapid rise in share price it leads to stocks being enormously overvalued.
And Lululemon is.
- Its current P/E is 78.6.
- Its current P/CF is 62.4.
- And its current forward P/E is 77.5.
I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued…
Lululemon crushes this threshold.
Why below 20?
Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.
When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.
This means you have a better chance of earning high investment returns owning its stock over time. And these combined make the stock a less risky investment.
With Lululemon stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time. And these make the stock riskier.
Lululemon will continue growing and being a leader in this space.
But I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.
If you’re buying Lululemon stock today there’s zero room for error due to its huge valuation.
For this reason, I recommend you stay far away from investing in Lululemon… Even though it’s an otherwise great stock.
So far this thesis to avoid Lululemon has continued to play out after it released its most up to date earnings on December 10th, 2020.
Revenues are up 22% to $1.1 billion in the year-to-year quarterly period.
Operating profits increased 17% to $204.9 million in the year-to-year quarterly period.
And earnings per share rose 14.6% to $1.10 per share in the year-to-year quarterly period.
This is all great… So why am I saying above the thesis to avoid its stock has continued to play out?
Because from September 10th – when I last wrote you about Lululemon – to today its share price is up from $320 to $352.66 per share.
Or an increase of 10.2% in that time.
And this means its still enormously overvalued.
Its P/E as of this writing is 80.3.
Its P/CF is 68.3.
And its forward P/E is 51.
This huge overvaluation continues to make Lululemon stock far to buy right now.
And for this reason, you should keep avoiding it.
Plus, I’ve already found you other great potential stocks that are undervalued to consider buying in your retirement portfolio.
Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above