Please name 3 key drivers for future growth in LULU (what would cause a sharehol

Question

Please name 3 key drivers for future growth in LULU (what would cause a shareholder to pay more for today's earnings)?

Describe how profit margins have trended recently? Would you expect these trends to continue?

How has SG&A trended (sales, general, and administrative expenses)? Is this positive or negative?

Does the performance of the stock, in your opinion, justified by the performance of the company?

Based on Goldman's research for LULU (page 2) for P/E's and EPS, what are they predicting about the stock?

Explanation / Answer

Three key drivers for future growth in LULU are – increased level of traffic at its stores, focus on growing markets in Asia (especially China) and increasing popularity for athleisure. Increases level of traffic at the company’s North American stores augurs well for the company and indicates an upturn in its comparable sales going forward. The company is focusing more in Asian markets like China and this will help the company to increase both its revenues as well as its profit margin. Lastly increasing popularity for athleisure will lead to further traction in the sales of the company going forward.

Profit margins have shown an increasing trend and the company’s margins are expected to increase in the future as well due to initiatives taken by the company in its distribution and supply chain activities.

SG&A (selling, administrative and general expenses) also have increased. In fact for the current quarter it increased by 260 basis points (bps). This is a negative for the company because if increase in SG&A is not controlled then the company will not be able to harness the benefits of higher sales in future and its margins will take a hit.

Yes, the performance of the stock is justified keeping in mind the performance of the company. As we can see from the stock graph LULU’s stock had outperformed S&P 500 till the period of April 2018. It is only after that the LULU started trailing S&P. This could be attributed to the increasing costs of the company. Going forward, as sales increases at a faster rate, the stock of the company is expected to again outperform S&P 500.

The P/E estimate for 1/19 is much higher than the current P/E of 24 (as on 1/18). This shows that the stock will see a significant increase in its price going forward. EPS is also forecasted to increase significantly to 3.59 (for 1/19), 4.23 (for 1/20) and 4.92 (for 1/21). This means that the net income will see good traction in the future and this make the stock of the company witness a jump in its prices.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.