This popular athletic wear maker is offering a tempting sale price.
Since Lululemon Athletica shares reached their all-time high in late 2021, investor attitudes toward growth stocks have changed dramatically. Wall Street predicted soaring earnings and sales for the company, and the stock traded at more than $450 per share at the time.
It was a different year in 2022 due to pressures such as inflation, a dip in consumer spending, and the shift away from e-commerce after nearly two years of all-digital shopping. It is estimated that around 30% of Lululemon’s previous stock price was lost to those trends by early 2023, causing Lululemon’s stock price to fall to about $320.
This move provides investors looking for growth today with an enticing buying opportunity.
Those Look Great
The Athleisure apparel industry has deteriorated without a doubt. According to Nike, there was a slowdown in sales trends and too much inventory leading to price cuts in many niches. Target and other retailers have also reduced their outlooks.
Despite these challenges, Lululemon has so far managed to stay afloat. A healthy 28% increase in sales was recorded in the third quarter, which ended in late October. Company growth in the U.S. was weaker than expected. Throughout 2022, however, sales increased strongly.
A noteworthy increase in gross profit margin was seen from 55% of sales a year ago to 56% of sales this year. The operating profitability of Lululemon is currently near 20% of sales, whereas Target has a low single-digit figure.
“Our ongoing momentum is a testament to our innovative products, deep community relationships, and the dedicated work and dedication of our talented teams,” CEO Calvin McDonald said in an early December statement.
With the holiday shopping season just around the corner, the company has a reasonable chance of closing out the year positively. After much faster sales gains through late November, Nike raised its short-term growth outlook in late December.
While shoppers are looking for ways to save money in other parts of their budgets, premium footwear and apparel remain popular among consumers.
The company’s March earnings report will reveal whether Lululemon had a successful fourth quarter. According to Wall Street pros, revenue gains will remain strong through the fiscal year at roughly 28%.
Should We Buy?
Investors can look beyond those short-term results and consider Lululemon’s stock’s many potential sources of growth.
In recent years, the company has demonstrated its ability to expand its demographics and expand into new geographies. Throughout most of 2022, profitability has steadily improved despite a wide range of selling conditions, including weak economic growth.
It is likely that the business will return to a solid growth pace during the next economic expansion cycle.
With consumer discretionary stocks like Lululemon, that’s about as good as it gets for investors. Thus, shares of this company look attractive today, given its market-thumping growth momentum and Wall Street’s 30% discount.