To The Moon

In today's edition, we will track the fundamental readings of long-term bullish companies in strong (TigerTrade Top 1 Gainer) concepts each week and look forward to your attention and discussion.

Disclaimer: Capital at risk. This is not direct financial advice or a recommendation to acquire or dispose of any investment, but for communication only.

3 of the 3 indexes closed green last week. The banking sector continues to stabilize, with the FDIC finding buyers for some Silicon Valley Bank assets.

The focus on retail stocks and the consumer continues, with $PVH Corp(PVH)$, $Lululemon Athletica(LULU)$ and $Conn's(CONN)$ reporting earnings.

Considering the different perceptions of the stock, this time TigerPicks choose  $Lululemon Athletica(LULU)$ to have a fundamental highlight to help users understand it better.

Lululemon has powerful brand recognition due to its high-quality athletic wear and focus on mindfulness and wellness. The company's commitment to ethical and sustainable practices also enhances its brand loyalty.

Lululemon 商店门面

$Lululemon Athletica(LULU)$

Pricing power has fed into extremely healthy margins

As you can see from the chart below, Lululemon has higher profitability, as measured by net margins, than its competitors. LULU commands higher margins than $Nike(NKE)$, $Ulta Salon Cosmetics & Fragrance(ULTA)$, $Ralph Lauren(RL)$ and $AptarGroup(ATR)$.

LULU Competitive Comparison

This is predominantly due to their concentration on premium quality materials and exclusive designs that appeal to a specific target market. In addition, they possess a robust brand image and devoted customer base that are willing to pay a higher price for their products. Furthermore, Lululemon employs a direct-to-consumer business model, which enables them to bypass intermediaries and sell products straight to consumers, thereby boosting their profitability.

The following chart shows the net margin and projections for Lululemon. Historical margins are shown as well as a composite view of margins based on earnings and revenue forecasts.

Lululemon Net Margins

As you can see from the chart Lululemon's margins vary between 13% and 20% historically. While current margins are around 14%, they are projected to be 16% in both 2023 and 2024. The above chart also shows the range of expected margins with the blue line indicating the mean estimates. As you can see, some analysts believe that Lululemon's margins may be as low as 14% in the future. However, this is not as low as it has been in the past and 16% margins are still extremely healthy. We can conclude that Lululemon's performance in the future will largely resemble the performance of the past.

Revenue Rocket

Revenue adds to great margins and exceptional RONTA to make LULU an exceptional buy.

Taking a closer look at Lululemon's financial performance, we can examine their revenue forecasts and compare them to previous years' revenue announcements. Using the chart below, we can see the last 8 years of revenue for Lululemon and projections for the next 2 years.

LULU Revenue

Lululemon's revenue projections indicate a positive trend with a growth rate of 23.6% for the next fiscal year. This represents a 6.2% increase from their historical growth rate of 17.4%. Many other high growth companies, such as ORLY, ORCL, and AMZN show some slowdown in revenue growth over the next two years. Lululemon is a standout exception. Lululemon's estimated revenue for 2024 is expected to be within the range of $67.05 to $71.90 per share, with an average of $69.90 per share. These projections suggest that Lululemon's revenue picture is likely to continue growing in the future.

Opportunities and Risks

Started as a women’s brand , LULU expanded into the men’s category in 2014. Perhaps to some surprise, the brand has resonated with men, with its men’s line growing to over $1.5 billion in sales in 2021 and growing 30% through the first nine months of 2022.

That said, its men’s sales are still just a little more than a third of its women’s sales. The company is projecting its men's category to be around $3 billion in sales in 2026. However, with the growth pace it is currently on, it should get there in 2025, with an outside shot of getting there in 2024. Product innovation and introductions, as well as increasing brand awareness should be the recipe for the continued strong growth.

Another big opportunity for LULU is continued international expansion. While the business is growing rapidly, it was only 15% of revenue in 2021 and 17% through the first nine months of 2022. At its last Analyst Day, management noted that unaided brand awareness was low in international markets, with the U.K. at only 15% and China at 7%.

As such, LULU has a lot of room both to increase its store base as well as increase brand awareness through marketing. It is looking for segment revenue to quadruple in 2026 from 2021 levels, with China becoming its #2 global market.

Given China’s love for high-end brands, this appears to be a great market for LULU to go after. In Q3, the company saw its Mainland China revenue surge nearly 70%.

LULU also has a good opportunity to continue to grow its strong women’s business through continued product innovation and expanding categories. Its Wunder Puff jacket is one recent example of this, while its Align sub-brand has become an over $1 billion franchise. Footwear could be a nice opportunity, although the company has said it is a test-and-learn category.

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 26 analysts offering 12-month price forecasts for Lululemon Athletica Inc have a median target of 412.23, with a high estimate of 500.00 and a low estimate of 225.00. The median estimate represents a +13.21% increase from the last price of 364.12.

Hope this analysis helps you get more understanding of the company's whole image, Tiger Picks will follow up the monthly performance as a longterm track.

Resource:

https://seekingalpha.com/article/4591578-lululemon-differentiation-leads-to-superior-profits

https://seekingalpha.com/article/4587602-lululemon-has-lots-of-growth-ahead

What are your thoughts on  $Lululemon Athletica(LULU)$?

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