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What: lululemon athletica
So what: Reporting $0.36 per share earned, versus $0.20 earned last year, is clearly a "beat," but is it a "buy" signal? Noting the shares' pre-earnings run-up, Nomura Securities recently went on record saying the stock's valuation "does not make sense."
Now what: I suppose I see the logic in that. After all, LULU's now trading for nearly 49 times earnings -- a steep valuation, and more than twice what marquee Nike
I'd also point out that P/E is not the sum total of valuation perspectives. Price LULU on its free cash flow (which significantly outpaces reported earnings), and what you've got here is an enterprise valued at 32 times annual free cash flow, which is growing at more than 27% per year. Not an obvious bargain, I'll admit, but a heckuvalot cheaper than Under Armour. And, if lululemon keeps outgrowing analyst estimates, and that 27% growth prediction turns out to be conservative? Why, then it just might be a "buy."
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