Continuing to make news headlines for all the wrong reasons is lululemon athletica inc. (NASDAQ/LULU).
First there was outrage when some of the company’s highly popular yoga pants were found to be too sheer. Now, we have founder and CEO Chip Wilson really agitating some of the company’s customers and women in general. According to Chip, the pilling of fabric in the thigh area of the brand’s pants was, in his opinion, due to the fact that Lululemon pants were not designed for certain body types. Chip suggested that those with thicker thighs are the problem for the pilling.
Now, Chip may have his view, but it really isn’t smart to express it so tactlessly in the media, causing some of the company’s customers to turn away or even call for a boycott.
I’m not sure what—if any—major ramifications the comments will have, but I doubt it will be enough to make customers run to the exits in masses.
Lululemon does make good and fashionable clothing that is widely popular with the workout crowd and people in general. The brand name is gaining worldwide attention, and it will continue—that is, of course, unless Chip decides to make more dumb remarks to the media. Put a filter on Chip, and I believe Lululemon will continue to become a major success story worldwide and a possible buying opportunity.
The stock price is down 0.33% over the past 52 weeks and underperforming the 28.3% advance in the S&P 500. In my view, this suggests a buying opportunity in Lululemon.
The stock is trading in a tight sideways channel, as shown on the chart below, and could break higher, offering a buying opportunity, according to my technical analysis.
Lululemon has reported higher annual sales in nine straight fiscal years. With a mere $18.19 million in sales in fiscal 2004, the company has grown sales in each subsequent year to $1.37 billion in fiscal 2013. Going forward, the company is expected to continue the trend. Sales are estimated to rise 19.6% to an estimated $1.64 billion in fiscal 2014, followed by 21.2% to an estimated $1.99 billion in fiscal 2015, based on data from Thomson Financial.
Lululemon also reported higher sequential profits in each of the last eight fiscal years from a loss of $0.02 per diluted share in fiscal 2005 to $1.85 per diluted share in fiscal 2013. And like sales, fiscal earnings growth is expected to continue with $1.96 per diluted share in fiscal 2014 followed by $2.48 per diluted share in fiscal 2015, according to Thomson Financial.
These are fantastic growth metrics for sales and earnings, and they suggest a possible buying opportunity. The reward will likely be a higher share price down the road, as the market boosts the company’s valuation.
The company is also debt-free, which will allow it more financial flexibility to grow operations and expand its business worldwide, making it a more attractive buying opportunity.
Long-term investors should be rewarded with this buying opportunity. In the near-term, the valuation is on the high end, so this stock may be a buying opportunity to consider on weakness. However, the estimated growth metrics do help to support the current valuation and possible buying opportunity.
For another possible buying opportunity, see “If Apple Does a Deal with This Company, I’d Buy the Stock.”