As part of our ongoing series at The Acquirer’s Multiple, each week we spotlight a stock from our Stock Screeners that might be a deeply undervalued gem hiding in plain sight.
This week’s spotlight is: Lululemon Athletica Inc. (LULU)
Lululemon is a global leader in athletic apparel, known for its premium yoga wear, lifestyle products, and innovative retail strategy. While the brand often carries a reputation for being priced at a premium both in stores and on the market, the company’s financial performance shows a business with impressive revenue growth, strong cash generation, and a balance sheet that supports continued expansion. At today’s valuation multiples, LULU may offer investors more intrinsic value than its price suggests.
What is IV/P (Intrinsic Value to Price)?
IV/P tells you whether a stock offers more intrinsic value than the price you’re paying for it.
The Calculation: It blends earnings power, reinvestment efficiency, and capital return policy to estimate intrinsic value — a conservative valuation of what the business is worth.
The Interpretation:
- IV/P > 1 → Stock may be undervalued
- IV/P < 1 → Stock may be overvalued
- The further above 1, the more value you may be getting per dollar invested.
IV/P for LULU: 1.30
LULU’s IV/P of 1.30 suggests its intrinsic value is estimated to be ~30% above its current market price — indicating a reasonable margin of safety for investors.
Supporting Metrics
- Market Cap: ~$19.02B
- Enterprise Value (EV): ~$19.62B
- Free Cash Flow (TTM): ~$1.17B
- Free Cash Flow Yield: ~5.5%
- Acquirer’s Multiple: 7.90
Lululemon generates consistent cash flows while maintaining healthy reinvestment capacity, positioning it well for both growth and shareholder returns.
Revenue & Profitability
- Revenue (TTM): ~$10.9B
- Operating Income (TTM): ~$2.50B
- Operating Margin: ~23%
- Net Income (TTM): ~$1.79B
- Net Margin: ~16%
- Return on Equity (TTM): ~41%
- Diluted EPS (TTM): 14.68
- EBIT (TTM): ~$2.55B
These figures reflect a high-margin consumer brand with strong pricing power and enviable returns on capital, especially compared with peers in the apparel and retail space.
Balance Sheet Strength
- Total Assets (2025): ~$7.6B
- Cash & Equivalents: ~$2.0B
- Total Debt: ~$1.6B
- Shareholder Equity: ~$4.3B
- Working Capital: ~$2.1B
With nearly $2B in cash, moderate leverage, and ample working capital, Lululemon’s balance sheet provides a strong cushion against retail cycles and competitive pressures.
Capital Returns
- Buyback Yield (TTM): ~6–7% (driven by aggressive share repurchases of ~$1.46B)
- Dividend Yield: 0% (LULU does not currently pay a dividend)
- Capital Expenditure (TTM): ~$744M
LULU prioritizes reinvestment in growth and shareholder returns via buybacks, rather than dividends. This reflects management’s confidence in long-term brand expansion.
Why Might LULU Be Undervalued?
- Premium Brand Perception: Investors may assume LULU is perpetually “expensive” due to its growth profile, overlooking the fact that valuation metrics are now far more attractive than historical averages.
- Margin Durability: With 23% operating margins, LULU remains one of the most profitable retailers globally, supported by direct-to-consumer dominance.
- Capital Efficiency: A 7.90 Acquirer’s Multiple coupled with a 1.30 IV/P indicates undervaluation relative to the company’s strong cash generation.
- Global Expansion: Continued growth in international markets, especially Asia, provides a long runway for sales and margin expansion.
Conclusion
With an IV/P of 1.30, an Acquirer’s Multiple of 7.90, steady free cash flow, and a robust balance sheet, Lululemon Athletica (LULU) presents a compelling opportunity in the retail sector. While not as deeply undervalued as some cyclical plays, its strong brand equity, global growth trajectory, and efficient capital returns make it a stock that value investors should not overlook.
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