Analyst Note| David Swartz |
Lululemon has posted stellar sales and earnings results since 2018, which has resulted in a 56% annual return to investors over the past three years. We acknowledge that Lululemon has a popular brand and assign it a narrow-moat rating. However, its shares trade at a 100% premium to our per share fair value estimate of $155 and even a 45% premium to our bull-case fair value estimate of $213. For comparison, Lululemon’s $40 billion market capitalization is now more than that of no-moat fast fashion retailer Hennes & Mauritz, which produces about 5 times as much annual revenue. While we do not necessarily foresee any short-term problems for Lululemon, we remind investors that apparel is a brutally competitive industry in which fashion trends can and will change rapidly.