Is Lululemon Athletica a Buy Now That It Has Declined Recently?

Lululemon’s recent financial results disappointed Wall Street and the company has hit some bumps in the road in the past year, but with the declines in its stock price, it now may be time to buy.

Jul 3, 2014 at 7:00AM

Lululemon Athletica (NASDAQ:LULU) has experienced a couple of setbacks during the past year, with its financial results for the first quarter of 2014 disappointing Wall Street being the most recent setback. The company's earnings declined by a significant margin of 59%, from $0.32 in 2013's first quarter to $0.13 in 2014's. As a result, Lululemon's stock took a dive on the day it reported its earnings and dropped by about 16%. Year to date, Lululemon's stock has been on a steady decline, falling close to 32% in 2014.

LULU Chart

LULU data by YCharts

With Lululemon's stock declining significantly, is now the time to buy? If you believe that risk is more related to the price you pay for stocks than to their historical volatility, then Lululemon might be a good investment at this point.

Lululemon and its competition
Lululemon competes against a number of companies in the athletic clothing market. Some of its major competitors include Nike (NYSE:NKE), The Gap (NYSE:GPS), and Adidas (NASDAQOTH:ADDYY). The following table compares the current valuations of Lululemon and the aforementioned companies.



Forward P/E

5-yr. PEG












The Gap










Data Source: Yahoo Finance & Morningstar

Even with significant declines in 2014, Lululemon does not stand out on a valuation basis against its peers given the valuation metrics explored here. The Gap looks the most attractively valued looking back not only at earnings over the last 12 months but also at cash flow over the last 12 months, with a P/E and P/CF of 16 and 10, respectively.

Adidas, however, "takes the crown" looking at projected earnings over the next 12 months and over the next five years with a forward P/E of 7 and a 5-yr. PEG of 0.6. Stocks with 5-year PEG ratios less than one are considered undervalued and Adidas certainly fits that bill, with The Gap more or less fairly valued considering that criterion. Nike looks overvalued and so does Lululemon, but less so than Nike considering their PEG ratios; nonetheless, neither company looks overly attractive given their 5-year PEG values.

Not attractively valued, but not on a death spiral either
Wall Street did not like Lululemon's 2014 first-quarter results, but the overall financials were not bad at all. The steep decline in earnings was mostly a result of the company repatriating money from overseas, leading to a hefty tax charge in the quarter. Lululemon's earnings before taxes actually increased in the quarter by 6% to $71.44 million from $67.39 million in 2013's first quarter. Excluding the one-time tax charge, Lululemon's earnings actually increased by $0.02 to $0.34 from $0.32 in 2013's first quarter. Moreover, the company's revenue rose by 11% to $384.6 million from $345.8 million in the first quarter of 2013.

Foolish takeaway
Lululemon's recent results are not a harbinger of more misfortune for the company or its stock ahead. Although the company is not rapidly expanding as it had done in the past, it is to be expected as more competitors enter the market for women's athletic clothing and as Lululemon matures and has less room to expand in the U.S.

The stock is not a screaming buy, but it is not a screaming sell either. Given its performance when one digs deeper down into the financials, Lululemon is definitely a better buy now than it was before its most recent decline. At its current price, investors should not get hurt initiating an investment in Lululemon.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information