LULULEMON ATHLETICA INC (NASDAQ:LULU) – A Strong Contender for Quality Investors

LULULEMON ATHLETICA INC (NASDAQ:LULU) stands out as a compelling pick for quality investors, based on our Caviar Cruise screening criteria. The company demonstrates strong revenue and profit growth, high returns on capital, and a solid financial position. Below, we examine why LULU fits the profile of a quality investment.

Key Strengths of LULULEMON

• Revenue and EBIT Growth: Over the past five years, LULU has delivered annual revenue growth of 8.0% and EBIT growth of 23.0%, well above the minimum 5% threshold required by our screen. This indicates a strong and expanding business.
• High Return on Invested Capital (ROIC): LULU’s ROIC (excluding cash and goodwill) is an impressive 40.9%, far exceeding the 15% benchmark. This suggests the company efficiently generates profits from its investments.
• Strong Profit Quality: With a five-year average profit quality of 86.2%, LULU converts a large portion of net income into free cash flow, reflecting reliable earnings.
• Zero Debt Burden: The company has no debt, resulting in a Debt/FCF ratio of 0, which underscores financial stability and flexibility.

Fundamental Analysis Highlights

Our fundamental report rates LULU 7 out of 10, with particularly high scores in profitability (9/10) and financial health (9/10). Key takeaways include:

• Profitability: Exceptional margins, with a 23.4% operating margin and 16.8% net margin, placing it among the top performers in its industry.
• Valuation: Trading at a P/E of 16.0, LULU appears reasonably priced relative to peers and the broader market.
• Growth Outlook: Analysts expect continued earnings growth of 11.2% annually, though revenue growth may moderate slightly.

Why Quality Investors Should Consider LULU

LULU’s combination of high profitability, efficient capital allocation, and strong cash flow generation aligns well with quality investing principles. While past growth has been robust, investors should monitor whether future expansion keeps pace with expectations.

For more quality stock ideas, explore our Caviar Cruise screener.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.