Is Lululemon’s Stock Still a Buy?

With shares of Lululemon (NASDAQ:LULU) trading at around $74.55, is it an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C – Catalyst for the Stock’s Movement

Lululemon has had a fantastic year by most metrics, and investors have handsomely rewarded the stock which is now up 54% YTD. The shorts have always enjoyed criticizing Lulu, yet have shown a general misunderstanding of the these core components: the company, the yoga and fitness market, and Lulu’s target demographic. But can this stock continue to be a darling of Wall Street?

Multiple indicators point toward strong continued growth potential for Lululemon. They manufacture highly regarded yoga apparel that targets a popular segment of the fitness industry and caters to a loyal customer base. This has allowed them to charge a premium for their products, and their customers have clearly decided that Lulu’s pricing is justified, even in a slow economy. Furthermore, they raised full-year EPS expectations on strong earnings in their last quarter.

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While these factors alone support the potential for continued growth, the real catalysts for future movement are in their plans for expansion, both into new geographic regions and into new fitness markets. Lululemon has just begun to tap into the international market, opening their first store in the European market in London earlier this year and recently opening a store in Hong Kong. Additionally, they have expanded their same-store product offerings in two ways. First, they introduced a men’s line of products (in Q1 of this year their men’s apparel contributed to 12% of sales). Second, they are expanding into other valuable fitness markets beyond yoga, with a growing collection of high-end running apparel items.

E – Debt to Equity Ratio is Zero

With no debt, $444 million cash on hand, and $726 million book value, Lulu passes this metric with flying colors.

T – Technicals on the Stock Chart are Strong

Lululemon has consistently outpaced the S&P 500…