Weighing Lululemon Athletica inc. (LULU)’s Expansion Plans

Shares trade at a rich multiple as a result of the company’s unheard of earnings growth of over 120% last quarter alone. On a forward multiple basis, we see shares trading at 41 times next year’s earnings. At this time, it looks like Under Armour is fairly valued. The PEG ratio is over 2 and shares trade at analysts’  price targets. Going forward, the company should continue its focus on arranging mainstream sponsorship agreements. If the company wants to make a bigger dent in the golf industry specifically, it should look to offer fabric technology designed for golfers.

Foolish wrap up

While a focus on its men’s line could potentially be lucrative, I doubt Lululemon will gain significant market share. I don’t believe the majority of men feel comfortable using a product so strongly associated with the opposite gender. How successful would L Brands be if it decided to open a standalone men’s underwear store?

Lululemon has a great thing going. Instead of focusing on its men’s division, the company should look to further leverage its brand across the entire women’s apparel industry. Yes, Nike does have only half the estimated growth of Lululemon but trades at a 40% discount based on a forward price-to-earnings ratio. Take the swoosh over the horseshoe.

Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour.

The article Weighing Lululemon’s Expansion Plans originally appeared on Fool.com and is written by Nathaniel Matherson.

Nathaniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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