Is Lululemon Athletica Inc. (NASDAQ:LULU) Potentially Undervalued?

Let's talk about the popular Lululemon Athletica Inc. (NASDAQ:LULU). The company's shares saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$505 and falling to the lows of US$350. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Lululemon Athletica's current trading price of US$350 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lululemon Athletica’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Lululemon Athletica

What's The Opportunity In Lululemon Athletica?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 8.3% below our intrinsic value, which means if you buy Lululemon Athletica today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $381.77, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Lululemon Athletica’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Lululemon Athletica?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 40% over the next couple of years, the future seems bright for Lululemon Athletica. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? LULU’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on LULU, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Diving deeper into the forecasts for Lululemon Athletica mentioned earlier will help you understand how analysts view the stock going forward. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

If you are no longer interested in Lululemon Athletica, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.