Is Lululemon’s bull run coming to an end?

Lululemon Athletica (NASDAQ: LULU) is one apparel brand that has been cruising despite the onslaught of online shopping giants. Since its public debut 12 years ago, the Canadian apparel firm has seen its stock soar over 1,200%. To bring some perspective, the S&P 500 index has gained just over 100% during the same period.

As the company continues to impress the street quarter after quarter, the stock has maintained its bull run this year and is up 57% till date. The stock is currently trading near an all-time high at around $194. So has it hit a roof?

Overvalued, with an upside

As counterintuitive as it may sound, Lululemon presents an ironic scenario to investors. The strong rally indeed has resulted in the stock being overvalued from a fundamental point of view, but the street continues to be bullish on the stock. In fact, 16 out of 24 analysts covering the stock feel it is buy-worthy.

Not a single analyst has a sell rating on the stock, signifying its continued growth potential in the coming years. Most of the optimism is derived from the strong operational performance of the company, efficient management and the strong outlook on the athleisure industry.

While these factors should help Lululemon sail through in the coming years, the hidden threat is the downward potential in the event of an unforeseen change in the market sentiment. The effects of a valuation boom would then come into play, pinching it more than it actually should. But then, it’s a “what if” scenario.

Solid stock

Earlier this month, Lululemon surpassed market expectations for the second quarter, aided by a 15% increase in comparable sales. It may be noted that the sports apparel retailer has consistently reported double-digit comp sales in the trailing seven quarters.  The management also raised its guidance for the full year.

The company’s loyalty program, which was rolled out only in a few regions on a trial basis, is already showing a lot of promise and is bringing consistent revenues. With the expansion of the program to other areas, the company may expect to see a further boost in the topline.

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The Vancouver-based firm will probably flow these extra revenues into international expansion, where it expects to quadruple sales by 2023. The company is already taking its expansion activities quite seriously by quickly adding more stores, especially in the Asia Pacific region.

Lululemon is also doubling down on new products, which are expected to drive margins in the long-term.

With relatively low debt and potential for strong growth ahead, it may be safely assumed that the stock’s rally is not yet over.

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