Lululemon Athletica (LULU) Trading At The Best Valuation in Seven Years

The iconic athletic apparel brand has seen its stock decline 40% since the late 2023 all-time high. That is presenting an opportunity. Its Price/Earnings (P/E) is the lowest it has been in seven years.

Trading.biz analyst Cory Mitchell commented “LULU recently hit its lowest P/E in the last seven years at 23.7. After a slight bounce in the stock the P/E is currently 24.9. The last time investors could buy LULU near a 25 P/E was mid-2017.

The company is still steadily growing revenues and analysts are forecasting increasing earnings over the next several years. LULU likely won’t be able to grow at the same pace it has in the past, but the sharp stock price selloff presents an opportunity to pick up a high-quality stock at a fair to very good valuation.”

Despite the recent stock sell-off, LULU is still a quality company. Here are some key metrics to consider.

• Analysts forecast that earnings will increase at a rate of 11.7% per year over the next five years. The median EPS growth expectation for S&P 500 stocks is 9.4%, for comparison.
• LULU has a strong history of bolstering earnings. Over the last five years, EPS has increased an average of 26.8% per year. Future growth is expected to be lower, so that is a concern, but that is why this stock should be purchased at lower P/E values now as opposed to high ones.
• The current P/E of 24.9 is near the lowest P/E the stock has seen in the last seven years. 23.7, recorded in May, was the lowest reading going back to June 2017.
• The company is financially health with an “A” financial health rating from Morningstar.
• LULU is buying back shares. This can help bolster shareholder value especially if the shares are purchased when the stock price is relatively low. The buyback yield is 2%.
• Sales are increasing along with earnings. This is the ideal scenario. When only one is going up it could mean there are some issues. Analysts are forecasting 11% sales growth this year and 9.7% the following year, to accompany the increasing earnings. Sales have increased an average of 23.5% per year over the last five years.

Lululemon is a quality stock trading at its best valuation in about seven years. There are risks though. The selloff may continue or earnings may slow more in the future than expected. The P/E may continue to drop (or even rise if earnings fall) without the share price rising.

Technically the stock has been in a big range for the last few years. $300 to $250 is the lower end of the range, with $475 to $500 being the upper end of the range. Buying near the low end of the range is technically appealing.