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Lululemon Athletica Inc. Message Board

  • valufound valufound Dec 11, 2010 2:35 PM Flag

    Let's have valuation discussion

    LULU has nearly a $5 Billion market cap on forward sales estimate of $825m- Let's compare to a few other retailers

    JCrew - bought at premium for less than $3B - 2011 estimate- $1.9B Sales

    Under Armor- $3B - 2011 Sales $1.3B

    ever heard of a company called Gap (old navy, banana) ? Gap has a $13B market cap ($15B sales in 2011)- Gaps is a perfect example of a company that has reached its full growth potential after more than a decade. It's not unusual to see a 1-1.5x sales for a mature specialty retailer.

    What's the real sales potential for a specialty retailer of fitness apparel? I would propose that even if they can grow sales by 500% from ~$700B to $3.5B at best LULU might warrant a market cap of $5B (where it is today). That's a significant amount of growth to achieve in what many might consider a finite market.

    Technically speaking, LULU is 37% above the 50 dma now and will have a difficult time outperforming the indices from here

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    • Real valuation doesn't matter anymore.

      A stocks like LULU is manipulate and washed.

      Stocks are only worth what someone is willing to buy it at.

      LULU is overvalued but that doesn't matter in today's type stock market.


    • Growth potential!

      LULU is merely a mid cap company, having nowhere near the saturation of Gap, Old Navy, or Banana, etc. A cash rich company, without out debt, and great expansion possibilities in the U.S, Canada, Australia, and China.

      It has a PEG ratio (5 year) of less that 2.

      They are sitting on cash over 7 times their quarterly revenue. They are a potential takeover target.

    • According to the earning report of third quarter, Lululemon has 72.7M shares outstanding.

      Revenue for the first three quarters was $466.3M. The company expected revenue to be $210M ~ $215M in the fourth quarter. That means the total revenue will be $676.3M to $681.3M. However, its market cap is now $4.96 billion (72.2M share x 68.7/share = 4,960M).

      LULU's market cap is 7 times larger than its annually revenue. And its book value is only $4.08 per share.

      Also, insiders are selling in the past months:

      LULU is way over valued and over pumped. It will go back to $50 or below.


    • 2005 2006 2007 2008 2009 2010
      Revenue 281 431 607 725 856 985
      UA Growth 53% 41% 19% 18% 15%

      Revenue 84 149 275 353 453 627
      LULU Growth 77% 85% 28% 28% 38%

      As you can see, once you get to the $750m in sales, revenue growth gets harder to come by. Even if we assume that LULU grows revenues by 35%,35%,30%,30% and 25%, over the next 5 years respectively, it's tough to justify today's valuation.

      Let's just suppose revenues scale massively as noted above-
      $627m, $846m, 1.142m, $1.485m, $1.931m, $2.413m

      At year five, growth is beginning to slow and valuations coming down to earth - 2x sales would be generous. That leaves us with a 2x $2.4b = $4.8b market cap. Let's not forget dilution from secondarys, stock/option issuance, etc.

      Bottom line, 5 years from now LULU will likely not be trading at a market cap of more than $5b - where it is today.

      • 1 Reply to valufound
      • Nike's market cap is $40 billion and they just sell shoes? I look at the peg ratio of 1.7, which is below the industry avg. An RBC analyst tried to cap this stock at $35 telling all his clients to sell because the max value was baked in. Anyways, why would you short a stock with a growth profile like LULU? People have been trying to short Amazon for many years claiming it is way overvalued and have lost big time. Even Analysts have no idea where this is going.


    • "specialty retailer of fitness apparel"

      LULU's brand is moving far beyond this description.

      Nike's market cap is $40B.

    • Good post. But why would anybody worry about such details unless a long term investor? Over extended, short at key levels, at support, buy. I believe learning to trade the momentum is key.

      Happy Trading!

    • Then you are certainly welcome to put me on your ignore user list. If you do not know how, perhaps you can get someone to help you.

    • Last 3 Qtrs Avg EPS Growth 137%
      Last Quarter % Earnings Surprise 44.0%
      3 Yr EPS Growth Rate 46%
      Consecutive Yrs of Annual EPS Growth 4
      Sales % Chg (Last Qtr) 56%
      3 Yr Sales Growth Rate 34%
      Annual Pre-Tax Margin 19.1%
      Annual ROE 30.0%
      Debt/Equity Ratio 0%

      How's that for pumping?

    • Don't forget Profitability - Sales are only one element. The margins at LULU are huge!! similar to Coach - which trades north of 4.0x Sales - $17B mkt cap on $4B in sales.

    • There are also stores in Australia and China.

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