Time to Sell Lululemon Stock at All-Time High Following Earnings?

Lululemon Athletica Inc. (NASDAQ: LULU) reported earnings on Wednesday, June 12th, sending shares higher when trading resumed. The athletic apparel maker delivered revenues that exceeded consensus analyst estimates by 3.6% and earnings that outpaced expectations by 5.7%, and management updated guidance to reflect more aggressive forecasts. Same-store-sales were particularly impressive at 14% year-over-year expansion. CEO Calvin McDonald was bullish about revenue growth opportunities on the conference call, citing international markets, men’s apparel and digital sales.

Lululemon stock has had an exceptionally strong two-year run, with shares rising 205% since June 2017. While their outlook is still strong, the company noted on their conference call that profits in the next year will be jeopardized by tariffs, especially those directed at China. Fundamental investors often view these situations as potential opportunities to exit a name and redeploy those gains to names with growth ahead of them, so LULU warrants investigation.

Lululemon grades out exceptionally well on a battery of ratios that measure efficiency, profitability and financial health, per FinScreener’s dashboard. 25.2% EBITDA margin and net profit margin above 17% are both excellent figures relative to large caps and especially strong relative to industry peers.

Wide margins and higher-than-average asset turnover help the company deliver excellent ROA, ROE and ROIC metrics that are all above the 90th percentile of S&P 500 companies.

Debt-sensitive investors are likely to find Lululemon’s capital structure appealing, with no long-term debt on the balance sheet. Liquidity ratios are well in excess of any number that would signal alarm.

Investors must pay a premium for LULU shares, as FinScreener’s valuation section shows high P/E, P/B and P/FCF ratios near that are almost all in the most expensive 10% of industry peers and large caps. Consensus analyst ratings still grade Lululemon a moderate buy, though charging valuations have slowly pulled more analysts away from the “strong buy” recommendation.

FinScreener’s three-star ranking places LULU firmly in neutral territory, with excellent a five star growth rating dragged back by a two star value rating. Despite a fantastic operational outlook, value investors should consider taking some gains and redeploying to other names with less upside already assumed in the valuation.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.