Lululemon: Unwarrented Selling Offers Excellent Opportunity

LULU Lululemon Athletica's Q4 performance exceeded expectations, with revenues rising 16% and gross margins growing by 4.3%. However, increased competition and price-conscious consumers have led to a decreased market cap and short-term headwinds.

Gross margins remain at 58% leading the industry and showing the prominence of the brand.
Lululemon has had great success internationally and continues to grow in Mainland China, and continues to remain a prominent brand in the United States.
Full-year diluted EPS came in at $12.20, jumping 83% y/y. With a P/E ratio of 30.57x, this entails a great deal of underlying intrinsic value.

During the year, Lululemon opened 56 net new stores, ending the year with 711 stores, showing no signs of slowing down and continues to innovate forward to keep up with competitors. While the retail environment in the United States has been recently challenging, I believe that the long-term fundamentals of the company outweigh any short-term headwinds, and the recent selloff provides an excellent opportunity for value.

I encourage potential investors to remain unemotional in volatile price action, and trust the fundamentals and management of a prominent brand and a very cash-positive business.

My one year price target remains at the technical support level of $515 with an upside of 44%.