Highlighted Stock with Solid Fundamentals: Lululemon
I have read and followed value investing and stocks for a couple of decades, and what I have found is that it can work, even for a common investor. This blog post is the first of a planned series of highlighted stocks of publicly traded companies that I have personally determined to have solid fundamentals for value investing. This means that they have passed overall the test of the list of checks that I have given in my investing guides: “Your Ultimate Investing Checklist to Screen for the Best Company Stocks,” as well as “How to Successfully Approach Long-Term Investing and Screen for Individual Stocks By Value Investing.”
I am going to give you a general overview of the companies, as well as their financial fundamentals, and allow you, if you are interested, to do further research to find out more information about them, to see if they might fit in your investment portfolio. Keep in mind that there are many well-run companies out there, and I am only reviewing a limited number of them, so my hope is that you can use these summaries as examples in how you look at the fundamentals of other businesses, also, to help determine if they may be a good investment for you.
Highlighted Company: Lululemon (NASDAQ: LULU)
General Overview
“Lululemon (LULU) is a Canadian multinational retailer, incorporated as Lululemon Athletica Inc., that designs, distributes, and sells athletic apparel, footwear, and accessories for yoga, running, training, and other activities. Founded in 1998, the company operates company-owned stores and a significant direct-to-consumer e-commerce business, marketing a lifestyle of health and wellness through high-quality, technically advanced products and a strong community focus.
Community & Lifestyle: . Lululemon emphasizes a lifestyle centered on health and wellness, creating a strong connection with its customers.
Product Quality: .
The company is known for its high-quality, durable, and technically advanced products, featuring innovative fabric technologies.
Sales Channels: .
Products are sold through company-operated physical stores, the company's e-commerce platform (lululemon.com), and other channels like pop-up shops and university retailers.
Sustainability: .
The company has a commitment to creating positive change for people and the planet. (Consainsights)
Lululemon's durable competitive advantages include its strong brand loyalty, high-quality premium products with innovative proprietary fabrics, a direct-to-consumer (DTC) sales model that drives profitability, and a deep connection to its community, all of which enable premium pricing, strong margins, and significant pricing power in the athletic apparel market.” (Google AI Overview)
Financial Fundamentals
High return on equity
Increasing revenues
Increasing net income and earnings per share
Decreasing outstanding shares (share repurchases)
No long-term debt and high cash-on-hand: making it difficult to go bankrupt
Increasing retained earnings and shareholder equity
High net margins
LULU should be considered a growth stock, with its increasing earnings and share repurchases, and no dividend. With its strong brand and outstanding financial fundamentals, it has solid long-term potential as a holding in your portfolio.
Price Check
Use the chart on the website given below, to try to value LULU’s intrinsic value, and the margin of safety at different earnings projections, and the current price:
https://www.gurufocus.com/stock/GOOG/dcf
On the middle left of the page, choose Earnings per Share (EPS w/o NRI), or free cash flow (FCF). The FCF has a lower given intrinsic valuation, but you can decide whether you want to have a more conservative analysis or not, or whether you want to take the average price of both types of valuations. You may want to change the growth rate under “Growth Stage” to a lower valuation of about 12-15%, to be conservative, since it may be difficult for such a large company to grow earnings at such a high rate.
On the line below, you can adjust the discount rate, which gives your desired average annual rate of return.
The other prepopulated values should be appropriate, so you can look at the meter in the middle of the page to determine your buy price, and the estimated margin of safety.
To look up other stocks, you can go to https://www.gurufocus.com/dcf-calculator
Here’s an article by The Motley Fool that sums up LULU as an outstanding company in which to invest:
Down 60%, Is the Worst Over for Lululemon Stock? The Answer May Surprise You
To learn more about investing in stocks of solid companies at reasonable prices, you can go to:
Note:
You may want to have your stock investments be part of an overall financial plan, as outlined in the financial life area of this website. You may also want to hold your stocks for a minimum of about at least 3 years, since they can fluctuate in the near-term, but usually track earnings over the long-term.
If you are not comfortable with investing in individual stocks, you may instead choose to invest in a broadly diversified index fund or ETF (exchange-traded fund), to benefit from being in the market, while mitigating your risk.
In general, here is an excellent article regarding “conservative”to “aggressive” portfolios, based on your time frame and risk tolerance.
There are also "target-date funds" that balance out your portfolio as it goes along, according to your requested timeline and risk tolerance.
An investing method that is recommended for most people, by famous value investor, Warren Buffett, is to put your money into a fund that matches the S&P 500.
As far as how often, and how much to invest in funds, the general recommendation is to do it periodically, by dollar-cost averaging, with the same amount of money at each time period - such as weekly, biweekly, or monthly.
Whatever type of fund portfolio you choose, make sure that you keep the administrative and management fees low, as these can greatly erode your returns over the long-term.
Disclaimer: This article is meant for informational and example purposes only. I do not have any personal association or investment in this company, or GuruFocus, or receive any compensation from them, or the mentioned securities. I am not a financial advisor, and am not promoting the purchase or sale of any kind of securities. Securities such as stocks, bonds, and ETF’s can fluctuate with market conditions, and investor sentiment. Also, I recommend that investing in stocks should be done within the framework of a comprehensive financial plan, with risks taken into account. You may also want to consult with a Certified Financial Planner.