Canadian apparel giant Lululemon (NASDAQ:LULU) appears unstoppable. The equity surged 15% in a single day following a 17% increase in comparable year-over-year sales and an earnings beat. Now, LULU stock has recovered all of the losses from the fall selloff in equities and currently trades near 52-week highs.
However, LULU has surged more than 50% higher since falling to its near-term low on Dec. 24.
This has left Lululemon stock with a heightened valuation. Although growth could keep LULU moving higher, for now, investors should evaluate it on macro trends rather than the company’s revenue and earnings growth.
LULU Stock and Long-Term Growth
Unlike many segments of retail, the athletic apparel industry has posted impressive growth in recent years. This comes in large part from a greater interest in fitness and from increasingly affluent Asian consumers who have purchased more athletic clothing.
Perhaps no equity has benefitted more than Lululemon stock. LULU continues to enjoy double-digit revenue and profit growth. Long a choice brand among women for yoga and running, the company has expanded its men’s segment in recent years. It has even gained a following among teens.
Lululemon trades at a forward price-to-earnings (PE) ratio of about 31.6. Analysts also see profit growth continuing. They forecast earnings will grow by more than 18% both this year and next. They also project average annual profit growth of 17.7% per year over the next five years.
Its long-term profit outlook comes in ahead of both Nike (NYSE:NKE) and VF Corp (NYSE:VFC). While falling short of Under Armour (NYSE:UA, NYSE:UAA) on earnings increases, LULU still outperforms UA on revenue growth.
LULU Stock and Market Trends
Still, this impressive performance holds both good news and bad news for LULU stock. Due to its move lower and recovery over the last year, investors may need to look at Lululemon stock as a proxy for the market.
The forward PE of 31.6 may seem fully valued or even slightly overpriced. The 18-plus% profit growth can help LULU justify that multiple, but only if the market continues moving higher.
However, traders should take heed of last year’s stock selloff. Lululemon peaked at $161.25 per share in late September. Soon after, the market decline began. By Dec. 24, LULU had fallen as low as $110.71 per share.
As mentioned before, the equity now slightly exceeds those September highs. Still, global growth has shown signs of slowing. Moreover, the current bull market has gone on for more than ten years now. If the market changes direction, one has to assume Lululemon will follow suit.
Over the long term, I see LULU as a winner. Should the stock find itself caught in a slowdown, I think it becomes one of the more apparent buys. However, only macro trends can drive it higher in the near term. With that movement possibly looking to shift, investors should consider waiting for now.
The Bottom Line on LULU Stock
Thanks to a recent move higher, macro trends will probably serve as the driving force of Lululemon in the near term. Perhaps no company understands trends in women’s athletic clothing better. As in previous years, this continues to bolster its stock. Moreover, a blowout earnings report and an overall market recovery have taken the price of LULU close to 52-week highs.
However, its PE ratio indicates that the Lululemon stock price accounts for the company’s growth in popularity. The trading patterns of the last year suggest the stock has become more of a proxy for the overall market than the company’s own numbers.
LULU stock remains a long-term buy. Still, with some market trends possibly turning negative, prospective buyers should exercise patience, not buy orders.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.