Lululemon’s P/E Is Back to 2017 Levels: Should You Buy the Dip?

Lululemon Athletica Inc. (LULU) is a leading retailer of technical athletic apparel, accessories, and related products. The company's focus on quality, functionality, and design has made it a favorite among consumers, particularly in the yoga and workout clothing market. As of August 2022, Lululemon's stock price had dipped below its levels from 2017, creating an opportunity for investors who believe the stock is undervalued.

Despite the current dip in stock price, several analysts and institutions remain bullish on Lululemon. According to a report by J.P. Morgan, they maintain an "Overweight" rating on LULU with a price target of $335 per share. This target represents a potential upside of approximately 33% from its current price.

Similarly, Goldman Sachs has a "Buy" rating on LULU with a price target of $345 per share, implying a potential gain of around 35%. These targets are based on the companies' expectations of continued growth in Lululemon's core business segments, as well as potential expansion into new markets.

One of the key drivers of Lululemon's growth has been its digital sales. In Q3 2022, digital sales grew by 33% year over year, accounting for over 40% of total revenue. This growth was driven by both e-commerce sales and the company's omnichannel strategy, which allows customers to buy online and pick up in-store or return items easily.

Another factor contributing to Lululemon's growth is its expansion into new markets. The company has been expanding its presence in Europe and Asia, where it sees significant potential for growth. In Q3 2022, international sales grew by 39% year over year.

Furthermore, Lululemon has been investing in new product categories, such as men's and children's clothing. These categories have been growing rapidly, with men's sales increasing by 35% year over year in Q3 2022 and children's sales growing by 43% year over year.

In conclusion, while Lululemon's stock price has dipped below its levels from 2017, several analysts and institutions believe that the stock is undervalued. They see potential for double-digit gains based on continued growth in the company's core business segments, as well as expansion into new markets and product categories. However, as with any investment, it's important to do your own research and consider your own risk tolerance before making a decision.