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Lululemon Athletica Inc. Stock Buy Recommendation Reiterated (LULU)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Lululemon Athletica (Nasdaq: LULU) has been reiterated by TheStreet Ratings as a buy with a ratings score of B. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 21.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.46, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 57.56% to $25.14 million when compared to the same quarter last year. In addition, LULULEMON ATHLETICA INC has also modestly surpassed the industry average cash flow growth rate of 56.17%.
  • LULULEMON ATHLETICA INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LULULEMON ATHLETICA INC increased its bottom line by earning $1.85 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.85).
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 52.80%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LULU's net profit margin of 13.67% compares favorably to the industry average.

lululemon athletica inc., together with its subsidiaries, designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth. It operates in three segments: Corporate-Owned Stores, Direct To Consumer, and Other. Lululemon has a market cap of $7.4 billion and is part of the consumer goods sector and consumer non-durables industry. The company has a P/E ratio of 35.00, above the S&P 500 P/E ratio of 18.00. Shares are down 14.2% year to date as of the close of trading on Wednesday.

You can view the full Lululemon Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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