Shares of lululemon athletica (LULU) have been strong performers lately, with the stock up 13.1% over the past month. The stock hit a new 52-week high of $233.12 in the previous session. lululemon athletica has gained 88.6% since the start of the year compared to the 25.7% move for the Zacks Consumer Discretionary sector and the 19.3% return for the Zacks Textile - Apparel industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on September 5, 2019, Lululemon reported EPS of $0.96 versus consensus estimate of $0.89.
For the current fiscal year, Lululemon is expected to post earnings of $4.74 per share on $3.88 billion in revenues. This represents a 23.44% change in EPS on a 17.85% change in revenues. For the next fiscal year, the company is expected to earn $5.6 per share on $4.45 billion in revenues. This represents a year-over-year change of 18.08% and 14.9%, respectively.
Lululemon may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Lululemon has a Value Score of D. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 48.4X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 47.1X versus its peer group's average of 8.5X. Additionally, the stock has a PEG ratio of 2.76. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Lululemon currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Lululemon meets the list of requirements. Thus, it seems as though Lululemon shares could still be poised for more gains ahead.
How Does Lululemon Stack Up to the Competition?
Shares of Lululemon have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also solid potential picks, including Teijin (TINLY), Tailored Brands (TLRD), and Steven Madden (
SHOO Quick Quote SHOO - Free Report) , all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
The Zacks Industry Rank is in the top 35% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Lululemon, even beyond its own solid fundamental situation.