Presentation Title

Lululemon Athletica Inc. Investment Research

Format of Presentation

Poster to be presented the Friday of the conference

Presenter Information

Mer Sánchez GonzálezFollow

Abstract

The purpose of the research report is to provide a buy, sell or hold recommendation for Lululemon Inc., an athletic apparel retailer company headquartered in Vancouver, Canada. Previous to evaluating the company, it was necessary to learn about the business; its products, market segments and strategy. In addition, an industry overview and a competitive positioning were required. To evaluate the business, it was also necessary to know its investment risks as those can greatly affect the company in the future. After developing a general overview of Lululemon, the next step was to do a financial analysis in order to understand its main characteristics relating to liquidity, asset management, leverage and profitability. The previous steps oriented us to our goal, which is Lululemon´s valuation. Several approaches were used to make either a buy, hold or sell recommendation: market multiples and discounted cash flows. With company information we estimated the price-earnings (P/E) multiple and with industry information we estimated the price-book (P/BV) value multiple using a multi-regression model. Both approaches provided information with which we could conclude that Lululemon was fairly priced. The final approach was discounted cash flows (FCFE), based on which the company could be considered to be slightly overpriced. As the three prices obtained were close to the closing price on November 29, 2018, we issued a hold recommendation for Lululemon. Nonetheless, the third approach was based on a modest growth estimate for the coming years. Other analysts assumed higher growth rates, which we considered to be overstated. Those growth rates are high for a company who is in such a competitive industry. Lululemon will not be able to continue growing at that rate for a long period. The conclusion was then a hold recommendation but with caution. Once competitors begin to react more strongly to Lululemon’s advantageous high growth position, the recommendation is to sell.

Department

Accounting and Finance

Faculty Advisor

Daniel Thompson

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Lululemon Athletica Inc. Investment Research

The purpose of the research report is to provide a buy, sell or hold recommendation for Lululemon Inc., an athletic apparel retailer company headquartered in Vancouver, Canada. Previous to evaluating the company, it was necessary to learn about the business; its products, market segments and strategy. In addition, an industry overview and a competitive positioning were required. To evaluate the business, it was also necessary to know its investment risks as those can greatly affect the company in the future. After developing a general overview of Lululemon, the next step was to do a financial analysis in order to understand its main characteristics relating to liquidity, asset management, leverage and profitability. The previous steps oriented us to our goal, which is Lululemon´s valuation. Several approaches were used to make either a buy, hold or sell recommendation: market multiples and discounted cash flows. With company information we estimated the price-earnings (P/E) multiple and with industry information we estimated the price-book (P/BV) value multiple using a multi-regression model. Both approaches provided information with which we could conclude that Lululemon was fairly priced. The final approach was discounted cash flows (FCFE), based on which the company could be considered to be slightly overpriced. As the three prices obtained were close to the closing price on November 29, 2018, we issued a hold recommendation for Lululemon. Nonetheless, the third approach was based on a modest growth estimate for the coming years. Other analysts assumed higher growth rates, which we considered to be overstated. Those growth rates are high for a company who is in such a competitive industry. Lululemon will not be able to continue growing at that rate for a long period. The conclusion was then a hold recommendation but with caution. Once competitors begin to react more strongly to Lululemon’s advantageous high growth position, the recommendation is to sell.