Is Lululemon a Promising Investment?

OVERVIEW

Lululemon Athletica Incorporation is a retailer that designs, manufactures, and sells athletic apparel through their physical stores as well as their online stores. They make leggings, jackets, shorts, and tops for men, women, and children. They also offer other fitness accessories. They operate over 490 physical stores across the United States, Canada, China, New Zealand, and many others.

Why You Should?

  1. Lululemon offers premium and high-quality apparel for its consumers all around the world. Consumers will pick leggins sold for over 100 dollars due to the strong Lululemon brand. Consumers will know that Lululemon offers a consistent and high-quality product. This strong brand recognition will help the company’s future growth in the fitness market.
  2. Lululemon has developed a strong and loyal customer base who will keep buying Lululemon products for a long time due to strong brand recognition. This strong customer base will help them further grow into the fitness industry and help them battle any competition that comes their way.
  3. Some might think that Lululemon will be negatively impacted during the pandemic as the demand for expensive goods will decrease. However, Lululemon has seen demand spike due to in-home fitness and new customer trends due to a stay-at-home apparel environment. This spike in demand has benefited the company during times when other companies are going under due to the pandemic.
  4. Lululemon recently acquired Mirror, an in-home fitness company that manufactures a mirror device and the software to run that which allows for people to have a nice fitness space in their homes. This will help Lululemon integrate its apparel products with fitness hardware which will increase its sales. This will positively benefit Lululemon’s growth in the future.
  5. Lululemon has seen rising revenues and profits over the past couple of financial years due to the reasons mentioned above. This will help Lululemon build a stronger balance sheet which will help it to acquire more companies in the future to further build its fitness empire. In the financial year of 2020, the company reported revenues of around 4 billion and profits of around 645.6 million. Both of these metrics are higher than what the company reported in the financial year of 2018 when they had 3.3 billion and profits of around 484 million.

Why You Should Not?

  1. Lululemon is currently trading at over 300 dollars. This means that the stock is trading at over 76 times earnings. This high price and valuation means that the stock is a fairly volatile investment. I would wait for the stock price to fall a bit before investing in this promising company.
  2. Lululemon faces competition from several large and small companies like Nike who offer premium and regular fitness apparel for their consumers. They also face competition through their Mirror acquisition such as Peloton and Apple. This might hurt the company’s future growth in the fitness industry.

MY OPINION

In my opinion, I think that Lululemon is a great long-term investment due to its strong brand recognition around the world and having a strong customer base which will help its future growth. Acquiring companies which will help it gain market share in the fitness industry. However, tough competition and valuation concerns might hurt the company in the future.

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Aaditya Patel

Aaditya Patel

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.