With some 30% of its revenue coming from outside of the U.S., the retailer of yoga apparel was facing a negative earnings impact from the strong U.S. dollar devaluing those overseas sales.
However, the Vancouver company surprised everyone by topping Wall Street's earnings targets and giving a full-year 2015 business outlook of revenue growth of more than 12% and earnings per share of $1.93.
Investors holding LULU stock are feeling pretty good right now even though the shares, at around $66, are down about 3% currently. They are up nearly 19% for the year compared with the S&P 500, up 1.8% for the period.
However, while shares aren't cheap at 41 times earnings, or 20 points higher than the S&P 500, what's more important to consider is how quickly LULU can meet the profit growth implied by its high price to earnings ratio. Assuming LULU does meet average analysts' full-year 2015 earnings estimate of $1.93 per share, this puts the company on track to grow the fiscal-year 2016 consensus earnings estimate of $2.33 by 21% year over year.
A market leader like LULU that is growing earnings above 20% makes the stock a solid value play relative to the overall market, especially since the company has beaten Wall Street's earnings targets for 10 straight quarters.
The projected earnings estimate of $2.33 for the full year drops the forward P/E to 27. For some context, a forward P/E of 27 -- while it may be high relative to an average forward multiple of 17 for the S&P 500 -- shows LULU is not only comparable Nike (NKE) (forward P/E of 26) but much cheaper than Under Armour's (UA) forward multiple of 57.