I typically don’t pay too much attention to investing theses based on personal experience, even my own, because, as I have said many times, the plural of anecdote is not data. That said, sometimes a company’s story can be illustrated by one’s own experiences with them, and that is the case with me and lululemon (LULU). LULU reported their holiday quarter results after the close yesterday, and the knocked it out of the park. In the interest of full and early disclosure, I currently own LULU, and that the great quarter came as no surprise to me.
I fit the demographic of a lululemon customer in many ways; my family is relatively affluent with disposable income, my wife enjoys yoga, and my kids are all active and play a range of sports. What is interesting and really tells the story, though, is how the lululemon brand has gradually spread throughout my family. My wife was the first to buy anything Lulu, several years ago, when the yoga pants that were the foundation of their business were all the rage. Then my kids, one by one, started to buy stuff. It started with athletic wear, but soon transitioned to casual clothes worn all the time. Then, last Christmas, even I, the fuddy-duddy dad, became a convert when my son bought me a tennis shirt that rapidly became my favorite.
Obviously, the point here is not that we are a super-trendy bunch; if anything, we are the exact opposite of that. We are a group that typically resists trends, but over time, we have all become converts to lululemon because the apparel is well designed, well made and, most importantly, suits all of our lifestyles. That is why LULU’s results didn’t surprise me, and it is also why, even after the big jump in the stock that followed, LULU still looks like a buy.
The 1-year chart may not make you think so, given that the stock is up close to the 52-week high, but that is only part of the story. LULU’s all-time high is $485.83, achieved late in 2021, and the stock’s story since then is pretty typical for a growth-oriented company. It is one of multiple contraction, but on two fronts. The price has fallen to where it no longer possesses the triple-digit P/E ratio that was commonplace among growth stocks a couple of years ago. Now, the assumptions on which that strength was based are starting to look a lot more reasonable.
Even as the price has dropped, LULU’s earnings and revenue have taken off as people like my own family have gradually discovered what they offer, and it now looks like good value, even after a jump of 15% or so in reaction to its earnings. When you strip out charges and impairments related to the purchase of Mirror, lululemon earned $4.40 per share, which is a beat of the expected $4.26, and represents growth of 31% over last year’s same quarter results. That is good growth in any context, but in a year where inflation pushed prices up and consumers were losing confidence in their financial future, it is quite remarkable.
Lululemon is a company that is transitioning from a niche within yoga wear to a broader-based brand that has appeal across generations and interests, and that transition still has a long way to go. Based on a combination of the numbers and personal experience, the stock does too, and I for one will be adding to my long-term holdings soon. The chances are that after a pop like this, there will be a retracement before long, and if there is, that will be a buying opportunity, with the all-time high a viable target.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
