Lululemon Athletica beat on the top and bottom line when it reported earnings after the bell Wednesday, but the stock dipped slightly after hours on slightly softer than expected fourth quarter guidance. That doesn’t mean the gains are over for 2020.
The stock is up 86% for 2019 as the company has consistently beat earnings expectations by a healthy margin throughout the year and raised its full year 2019 guidance multiple times.
Consumers have continued adopting the currently trendy athleisure style and, as the company opens stores around the globe, investors and analysts have only gotten more bullish on the company’s earnings prospects for the next few years.
Lululemon’s multiple has expanded in 2019 to over 40 times next year’s earnings, while 2019 earnings per share is expected to grow 30% year-over-year. Meanwhile, the company has mitigated tariffs fairly well by controlling costs, keeping margins in check.
Here are a few reasons Lulu stock can keep its momentum in 2020.
“They [Lulu] have such a loyal base and growing abroad that the trend of athleisure as a style, not just for yoga wear, is not ending anytime soon,” said Eric Clark, portfolio manager at Rational Dynamic Brands Fund.
That will help maintain current EPS growth expectations, which are quite high. For 2020 and 2021, analysts polled by FactSet are looking for growth of 18% for each of the next two years. “The rate of change year-over-year is the biggest risk,” Clark said. “For now, particularly for the holiday season, I’ve been out doing my channel checks — the stores are packed as usual, online is still growing really well, and they’re still early in their Asia [expansion].” One key recent development is that Lulu has tracked well for the holiday season, according to analysts.
As for the stock’s multiple, “for now, the multiple doesn’t bother me,” Clark said.
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