lululemon athletica inc.'s (NASDAQ:LULU) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Unfortunately for some shareholders, the lululemon athletica inc. (NASDAQ:LULU) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 29% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about lululemon athletica's P/E ratio of 17x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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lululemon athletica certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for lululemon athletica

If you'd like to see what analysts are forecasting going forward, you should check out our free report on lululemon athletica .

Does Growth Match The P/E?

lululemon athletica's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. Pleasingly, EPS has also lifted 100% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 8.2% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 11% per annum growth forecast for the broader market.

In light of this, it's curious that lululemon athletica's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From lululemon athletica's P/E?

With its share price falling into a hole, the P/E for lululemon athletica looks quite average now. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that lululemon athletica currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for lululemon athletica with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than lululemon athletica. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.