Lululemon (LULU) knocked one right out of the ballpark with its incredible second quarter, sending shares soaring as high as 14.4% before retreating modestly.
Shares of the athleisure play are now up around 10% since before the company revealed its blowout results. (See LULU stock charts on TipRanks)
The stock, which already had a stretched multiple going into the quarter, remains as stretched as ever. However, the multiple isn’t as stretched as it could be given its momentum and the likelihood that there’s more outperformance to come over the next year, even as consumer spending looks to take a bit of a breather amid the latest rise in COVID-19 cases.
Lululemon is not a cheap stock at 67.3 times trailing earnings. In this kind of market though, you’ve got to pay for quality. As far as quality goes, it’s tough to match Lululemon right now. As such, I remain bullish on the stock after earnings.
Omnichannel Bets Paying off
The Vancouver-based athleisure retailer isn’t just a maker of fashionable yoga pants for women anymore. It’s become so much more. The company is mostly responsible for the “athleisure” trend in fashion, and has since made major waves in menswear. The brand is strong, and it’s showing signs of getting even stronger.
With the perfect mix of e-commerce and brick-and-mortar, Lululemon gets an A grade for executing on an omnichannel basis.
Sales growth (on a constant-currency basis) was 56% in Q2. That’s truly unbelievable for a clothing retailer with a $54-billion market cap.
The appetite for discretionary goods is strong, and Lululemon has proven it can command its magnificent margins with its powerful brand. The brand has fended off some pretty stiff competition of late, which goes to show what robust brands are truly capable of.
At writing, shares of LULU are trading at 10.2 times sales and 67.3 times trailing earnings. That’s not a multiple indicative of a retailer. It’s one that ought to be slapped on a fast-growing tech stock.
Undoubtedly, Lululemon has made major strides as its direct-to-consumer business model continues to pay off in the form of enviable margins.
Combined with an unmatched brand and continued sales momentum, LULU stock may actually be worth more than it’s commanding right now.
The market continues to reward growth, and Lululemon’s “stretched” multiple seems more than sustainable.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, LULU stock comes in as a Strong Buy. Out of 16 analyst ratings, there are 13 Buy recommendations, and three Hold recommendations.
The average LULU price target is $465.81. Analyst price targets range from a low of $410 per share, to a high of $520 per share.
Despite the slew of positives, investors should be aware of the near-term risks that could cause LULU stock to fall into a downward dog.
Most notably, supply disruptions in Vietnam, which pressured Nike (NYSE:) on Monday, could be a source of concern.
Disclosure: Joey Frenette doesn’t own shares of any company mentioned at the time of publication.
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