Shares of lululemon athletica (NASDAQ:LULU) shot up 50% in 2020. Traders have been clearly thrilled with the corporate’s blistering fee of e-commerce progress in the course of the pandemic. However since reaching a excessive of $399 final yr, the inventory worth has cooled off and at the moment sits at $312.
The inventory may very well be down for a wide range of causes, reminiscent of valuation issues or a rotation from progress to worth shares. Both manner, buyers who promote shares of Lululemon could miss out on life-changing returns over the following few a long time.
Listed below are 5 causes that illustrate the potential for this progress inventory to energy your retirement.
1. 2020 reset administration’s expectations
Final yr, Lululemon confirmed why its e-commerce enterprise is second to none. For the total yr, e-commerce income doubled and represented 52% of the enterprise within the fiscal fourth quarter. There are numerous retailers that will like to report these numbers.
Throughout the fiscal This autumn earnings name, CEO Calvin McDonald mentioned: “2020 has reset our expectations for what is feasible.” He added, “These outcomes have been considerably forward of our preliminary expectations and enabled us to attain, three years early, our 2023 purpose of doubling our e-commerce income from 2018 ranges.”
2. Retailer enlargement
The expansion of e-commerce might need reset expectations for what is feasible, however buyers also needs to take note of what administration mentioned about its store-opening alternatives.
“We proceed to be underpenetrated from a brick-and-mortar perspective throughout all our markets, together with North America and world wide,” McDonald mentioned.
Lululemon opened 30 web new company-operated shops in 2020, leaving the entire retailer footprint at 521 globally to complete the yr. Most of those new shops have been opened within the Asia Pacific area, the place Lululemon continues to expertise its strongest progress.
3. Huge worldwide alternative
Lululemon is changing into a world model. Whereas North America income elevated by 8% final yr, worldwide markets grew 31%.
“At solely 14% penetration, we’re within the very early days of our journey exterior of North America,” McDonald mentioned.
4. New product alternatives
Lululemon continues to achieve market share throughout males’s and ladies’s classes, however what’s thrilling is that administration continues to determine alternatives to unfold its wings inside the broader health market. Listed below are two huge ones that administration is passionate about.
Interactive health: Lululemon entered the health gear market final yr with the $500 million acquisition of Mirror — an interactive show that prices $1,495 and presents exercise lessons by skilled trainers for $39 per thirty days. It generated $170 million in income for the total yr, and administration anticipates additional progress of fifty% to 65% in fiscal 2021.
Throughout the name, CFO Meghan Frank mentioned: “Mirror stays early in its life cycle and we have made the strategic resolution to take a position greater than initially anticipated to construct long-term worth on this enterprise.”
Footwear: Lululemon highlighted this chance at its analyst day presentation in 2019. Lululemon has earlier expertise promoting footwear, as a part of a partnership with APL a couple of years in the past. What administration realized was that prospects resonate with Lululemon promoting footwear.
“[W]e are constructing towards the early 2022 launch of our technical footwear, which is able to permit us to offer friends with head-to-toe options,” McDonald introduced in the course of the This autumn earnings name.
Given the excessive buyer loyalty of the Lululemon model, I consider buyers are underestimating the gross sales alternative of Mirror and footwear.
5. Constructing momentum
Lululemon simply reported its third consecutive quarter of bettering income progress. After it reported a 17% decline in income at first of the pandemic, income has proven regular enchancment — up 2% within the second quarter, 22% within the third, and 24% in This autumn.
Lululemon is poised for a big year. Steering for fiscal 2021 requires adjusted earnings per share to extend by 35% on the midpoint of the steerage vary. With adjusted earnings anticipated to land between $6.30 to $6.45, that places the inventory’s present ahead price-to-earnings (P/E) ratio at 49 primarily based on the low finish of the vary.
The inventory appears to be like costly, however you may’t squeeze an organization’s intrinsic value right into a single metric, reminiscent of a P/E ratio. Contemplating all of the alternatives for this enterprise to broaden, I consider buyers are nonetheless underestimating Lululemon’s long-term progress potential.
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one in all our personal — helps us all assume critically about investing and make selections that assist us change into smarter, happier, and richer.