Nasdaq
华尔街日报lululemon athletica inc.'s (NASDAQ:LULU) Share Price Boosted 30% But Its Business Prospects Need A Lift Too
The lululemon athletica inc. (NASDAQ:LULU) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 43% in the last twelve months.
In spite of the firm bounce in price, lululemon athletica may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.5x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 34x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
lululemon athletica could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for lululemon athletica
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like lululemon athletica's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.0% last year. The latest three year period has also seen an excellent 62% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 3.6% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is noticeably more attractive.
With this information, we can see why lululemon athletica is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On lululemon athletica's P/E
Despite lululemon athletica's shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that lululemon athletica maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for lululemon athletica that you should be aware of.
If you're unsure about the strength of lululemon athletica's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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