3 Reasons We're Fans of Lululemon (LULU)

Over the past six months, Lululemon’s stock price fell to $201.69. Shareholders have lost 9.6% of their capital, which is disappointing considering the S&P 500 has climbed by 10%. This might have investors contemplating their next move.

Given the weaker price action, is this a buying opportunity for LULU? Find out in our full research report, it’s free.

Why Are We Positive On LULU?

Originally serving yogis and hockey players, Lululemon (NASDAQ:LULU) is a designer, distributor, and retailer of athletic apparel for men and women.

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.

Lululemon’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.8% per year.

2. Elite Gross Margin Powers Best-In-Class Business Model

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Lululemon has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 58.6% gross margin over the last two years. That means Lululemon only paid its suppliers $41.38 for every $100 in revenue.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Lululemon has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 12.8% over the last two years.

Final Judgment

These are just a few reasons why we're bullish on Lululemon. With the recent decline, the stock trades at 16.6× forward P/E (or $201.69 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

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