If we look at product manufacturers, Under Armour Inc (NYSE:UA) carried the highest level of inventory to sales at 68.6% in the last three months. You would expect that NIKE, Inc. (NYSE:NKE), as the much larger competitor, would have excellent inventory management, and they generally do at 53.81% of current quarter sales. However, Lululemon was even more efficient with an inventory to current quarter sales percentage of just 41.56%.
Another positive for Lululemon is the company is expected to grow earnings and revenue at a very fast rate, yet they are not diluting shareholders by issuing new shares to the same extent as Under Armour. Since Nike and Dick’s Sporting Goods are expected to grow EPS by between 11% and 15% over the next few years, neither company carries the same growth profile as Lululemon or Under Armour.
Of these two faster growing manufacturers, Under Armour increased its diluted share count by about 1.3% on a year-over-year basis. By comparison, Lululemon increased diluted shares by just 0.15% during that same timeframe. This doesn’t sound like much, but could be the reason that analysts expect roughly 1.4% better earnings growth from Lululemon compared to Under Armour.
No Stretching Required
The bottom line is that growth investors have two choices in this industry, and both are expected to grow earnings by better than 20%. However, at current prices Lululemon Athletica inc. (NASDAQ:LULU) appears to be the much better choice trading at about 33 times projected earnings for this year. Considering that Under Armour is expected to grow earnings at a slightly slower rate, yet trades for a P/E ratio of over 40, the choice looks pretty clear.
If you want fast growth, efficient inventory management, and the best gross margin, it’s no stretch to look at adding Lululemon to your portfolio. At the very least, investors should consider adding this company to their personalized Watchlist to keep up with developments.
The article This Company Is Anything but a Lemon originally appeared on Fool.com and is written by Chad Henage.
Chad Henage 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. Chad 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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