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Lululemon Athletica inc. Stock Will Surge on International Yoga Boom

Growth catalysts make LULU stock a buy

By Larry Ramer, InvestorPlace Contributor

Why Investors Shouldn't Bet on LULU Stock

As my colleague Karl Utermohlen reported, the third quarter results of Lululemon Athletica Inc. (NASDAQ:LULU)  were clearly impressive on many levels. Of particular interest to LULU stock and the company’s investors, its growth engines are expanding tremendously and look set to continue doing so for the foreseeable future.

In light of the company’s strong present and powerful future growth catalysts, investors should buy LULU stock at current levels. The company’s men’s, international and ecommerce businesses are growing rapidly and should become meaningful contributors to its long-term results.

The number of purchases that new male customers made from Lululemon jumped 21% year-over-year last quarter, while its revenue from China surged an incredible 450%. Its market growth across Asia was nearly 100%, while its market growth in Europe reached 40%.

All of these growth engines should continue to expand going forward. Health and fitness commentators believe that “men are now realising the benefits of yoga and are actively participating in it’s popularity,” while “happily, in 2017 we will be seeing more men embracing yoga-wear.”

It is logical that many more men will embrace yoga going forward in the U.S. and elsewhere in the West. Of course,  there is nothing inherently, exclusively feminine or emasculating about yoga, and the health benefits that the activity provides helps men as much as it helps women.

As these realities become more apparent in Western society, more men will join in the activity. Additionally, it is good for couples to have some interests in common, and that reality should drive more men to embrace yoga.

And as more men embrace the activity and come into lululemon’s stores with their wives or girlfriends, lululemon will continue to sell more apparel to men, boosting its results and pushing LULU stock up.

According to the Hindustan Times’ coverage of International Yoga Day earlier this year, “[N]umerous parks, lakes and resorts across China have become venues for the both official and unofficial yoga events being held with active support of the Chinese government.”

Given the tremendous economic growth of China, and the fact that the Chinese government is actively supporting yoga, it’s very likely that the popularity of yoga in general and yoga apparel in particular will continue to surge in the Asian country. That, of course, can only help Lululemon’s prospects in China.

And of course, ecommerce is starting to supplant brick and mortar stores in the U.S. and in much of the world. The fact that Lululemon’s ecommerce strategy appears to be working well is certainly quite positive for its overall outlook and for LULU stock.

The Bottom Line on LULU Stock

A statement by lululemon CEO Laurent Potdevin indicates that each of these catalysts will be a meaningful driver of the company’s financial results over the next few years. According to Potdevin, international sales, sales of men’s apparel and digital sales will each generate $1 billion of revenue for the company in 2020.

Since lululemon’s net revenue was $2.3 billion in fiscal 2016, the sales that each of these segments is expected to generate is quite meaningful. (Of course, there is significant overlap among the categories).

With a forward price to earnings ratio of about 27 and a price to sales ratio under 4, LULU stock isn’t dauntingly expensive by any means. Given the company’s strong present, as shown by its third-quarter-results, and its even better future, as indicated by its powerful growth catalysts, LULU is a buy.

As of this writing, Larry Ramer did not own any shares of any company mentioned.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/lulu-stock-yoga-boom/.

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