How High Can lululemon athletica Fly?

Shares of lululemon athletica (Nasdaq: LULU  ) hit a 52-week high recently. Let's look at how it got here and whether clear skies are ahead.

How it got here
The yoga gear purveyor has been putting up mouthwatering growth and defying skeptics in the process. For much of the past year, the retailer had trouble with inventory shortages that resulted in unmet demand. Even when lulu started to grow its inventory balance near the tail end of the year, some analysts still weren't happy.

Lululemon proceeded to kick off the year by bumping up its guidance (thank you, inventory), sending shares upward. Over the next couple of months, Street analysts would scramble to boost their own models and estimates to keep up with the company. Jump forward a couple of months to the official earnings release, and lulu stretched to beat the Street's heightened estimates and closed out its first fiscal year with a billion dollars in revenue.

That growth is attracting the attention of apparel competitors, including fitness-oriented players such as Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) , but they have yet to make a dent in lululemon's growth trajectory.

How it stacks up
Let's see how lululemon stacks up next to its peers.

LULU Chart

LULU data by YCharts

Near the end of 2010, lululemon sprinted ahead of the pack and hasn't looked back ever since. For deeper insight, let's look at some additional fundamental metrics to explain its outperformance.

Company

P/E (TTM)

EPS Growth (5-year rate)

Net Margin (TTM)

ROE (TTM)

lululemon 60.8 83.4% 18.5% 37.1%
Nike 23.0 10.7% 9.7% 22.6%
Under Armour 52.1 18.6% 6.6% 17.0%
Urban Outfitters (Nasdaq: URBN  ) 25.3 11.5% 7.5% 15.0%
Abercrombie & Fitch (NYSE: ANF  ) 35.3 (20.9%) 3.0% 6.8%

Source: Reuters. TTM = trailing 12 months.

There's no doubt that lululemon carries a loftier valuation than its peers, but it's justified, because its growth and profitability are far ahead of its rivals by a large margin, not to mention its superior return on equity. Urban Outfitters and Abercrombie & Fitch have stumbled over the past year or so, so their P/Es seem extra-rich considering this. The world of fashion can be a cruel mistress if fads fade and shoppers move on, but I think lululemon has lasting brand strength and loyalty among yogis to drive its growth and premium pricing power.

What's next
Lulu has numerous positive growth catalysts in the future, so there's a lot to look forward to. Its soaring online sales division helps boost brand awareness in untapped markets, paving the way to international growth opportunities and retail expansion, while jumping into offerings like men's apparel and swimwear will broaden its reach within its existing markets.

To stay up to date on whether lulu keeps up the breakneck pace, I invite you to add it to your watchlist by clicking here.

Fool contributor Evan Niu owns shares of lululemon athletica, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of Nike, lululemon athletica, and Under Armour. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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