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0:00 Hey guys, welcome back to another video. In this video, we're going to be talking about Lululemon stock, which has been getting shredded. Down close to 50% year-to date, down over 50% in the past 6 months, down nearly 20% in the past month. It's down in the past week as well, around 1.5%. In the past year, it's down 20%. And in the past 5 years, it's down around 45%. And this is a stock that has grown fundamentally, but the stock price has simply not done so. And you know the apparel industry is very rough. Obviously tastes in terms of the consumer are fickle and Lululemon is falling subject to that as many people are thinking that there's less demand for their product and their brand and that is why the stock is falling so much since the company did start. Obviously
0:45 they're seeing a lot of price appreciation. Um but in the past 5 years we've seen that this company is not doing well. So we're going to be talking about the company's fundamentals. We're going to be talking about what's going on with Lululemon. We're also going to be talking at the end of the video, we're going to be doing a reverse discounted cash flow to show you guys how much free cash flow growth is priced in to the current price of Lululemon. Hint, it is not a lot at current prices. But before I get into all that, let's roll the intro. I have been a rich man and I have been a poor man and I chose rich every time. I make investing content and my channel is dividend dude. You should leave a like and subscribe if you're going to enjoy the video. A disclaimer, this is not financial advice. I am just a dividend growth
1:31 investor trying to share my takes on dividend growth stocks and various other stocks. This is not financial or investment advice and always do your own due diligence before investing. So, we could see off the fundamentals of this business that this business has been growing quite nicely. We could see earnings per share growth on the 10-year quite considerable earnings per share growth per year. We could also see the stock price obviously over the five past 5 years has done pretty poorly. And we can see analyst consensus estimates here in the future earnings estimates table over on dividend data. And we can see that earnings per share growth is still projected to be positive for 2026 and projected to go to mid- single digits in 2027 and 28 and then accelerate even further beyond that. And sales growth is still projected to be in the mid single
2:17 digits throughout this whole time frame. So the stock fundamentally is doing definitely worse growth or projecting worse growth. And as you could see even on the earnings per share chart, you could start to see kind of a flattening out. So projecting worse growth, but projecting an acceleration in growth, which is definitely notable. We could also see that the revenue growth has been quite considerable, but yes, we are seeing a deceleration. This is the problem with Lululemon and obviously the average investor being aware of how fickle fashion is. People think it's going out of trend. It's going out of trend, right? So 10 year kron that revenue of 21.22% accelerating further to 22.9% in the past 5 years. But as you can see in the past year, you just have a revenue compound annual growth rate of 12.73%
3:04 considerably lower than the three, the five, and the 10-year compound annual growth rates. And if we zoom in on the quarterly revenue or even the annual revenue chart, you could start to see a flattening out as well. And this is revenue per share. So factoring in buybacks, if it was just pure revenue, it would probably be an even more trend of flattening out. We can also see the margins here, which we could zoom in on the past couple years. We can see margins still look good. No issues with margins. We can see net income is still looking pretty strong. Not any great trend of acceler or deceleration there. Free cash flow still looking pretty strong as well. Um, growing in the past couple years. It's obviously been flat. If we take a look at net debt, the company does have slightly more debt than cash, but not even considerable
3:50 considering the company's market cap. Only $382 million of more debt than cash. Now, something important for this business is that they're ramping up their buyback program. They're seeing this cheap valuation and Lululemon is saying, "Hey, we're going to plow a ton of money into buybacks." And you can see this with their quarterly buybacks. You could see that um just two years ago, just one year ago, they're not even doing 3% of buybacks. They're not even doing over half a percent. And then in 2024, late in 2024, they've ramped that up to over 1%. Nearly 2% in a quarter. Annual run rate is going way up. You can see nearly 1% in each quarter for these buybacks. And you can see that in the quarterly uh shares outstanding chart that the buybacks are being accelerated. Also, return on invested capital for Lululemon is at 29.23% annual run rate.
4:38 That is really, really good and definitely above average. So mostly signals of a quality business. Trends of deceleration worry investors right now. And I do want to get into the historical valuation and a reverse discounted cash flow. But I do want to reiterate one thing. It's that fashion is fickle. And like I said, it's hard to predict if a brand's going to be around the next 10 years. And I think that's why Lululemon is so cheap right now. And that's why people value companies like Louis Vuitton, companies like Hermes, companies like Nike and fashion is because these companies have staying power. Their brand is so strong and their I guess qualities are so strong that you are very confident that in the next 10 years they're going to be there. Like I'm very confident that in the next
5:23 10 years Nike is going to be around because of their premier brand in sports and that having so much staying power with the history obviously with Michael Jordan, Tiger Woods and their brand being associated with all these great players and stuff these luxury brands have as well that Lululemon just doesn't have. And I just do want to reiterate that before we get into the numbers because numerically the stock does look cheap. So we can look at some historical valuation measures here. And over the past 10 years, like over pretty much any time frame we look at, Lululemon is the cheapest it's ever been. In the past 10 years here at 13 times earnings, cheapest it's ever been. Significantly cheaper than the S&P 500 for the first time. We could do this on EVIB as well. Another great metric. Same exact trend. Cheapest it's ever been. 7.89 times.
6:10 EVIB right now. Significantly cheaper than the S&P. Same thing for free cash flow yield where now it's cheaper than its peers for the first time ever and free cash flow yield is now above 5.5%. Even price to earnings to growth which I don't really use that much. Price to earnings to growth 1.3 times cheapest it's ever been. Um and it's honestly I think this is a metric that obviously you could see the difference if we go back to PE. You can see the difference here is that PE is there's a significant difference in the average of where it's been in the past 10 years versus where it's at today. Where price earnings to growth, there's still a difference, but it's not as significant because you're factoring in that decelerated growth that Lululemon's projecting. But it's good to know that factoring in that decelerated growth, Lululemon is still the cheapest it's ever been. So, let's
6:55 get on to the reverse discounted cash flow. So doing a reverse discounted cash flow, we could see that the company's only projecting 0.9 or not only um factoring in less than 1% free cash flow growth baked into their current stock price, which is very very low considering how fast the company's grown free cash flow in the past and considering even the projections um being in the mid to high single digits. You know, this is extremely low. I'm just going to say it. Um, one could say the fashion uh lack of a brand moat and and the fear there is priced in. Now, will I be buying Lululemon? No. Uh, the only fashion company that I have enough uh, you know, balls to bet on, you could say, is Nike. And that's
7:42 because I think the brand has staying power. And that's pretty much it. I think it's a company with a great moat. And I don't want to invest in a company where I don't really see that much of a a a moat. And longterm in 10 years, I don't know where Lululemon is and that scares me and so I'm not going to invest in the company. But it does look very cheap and it's pricing in very low free cash flow growth and they're buying back a lot of shares and fundamentally it does look good. So I wouldn't fault those for buying. I just think the risk is definitely there and I don't think it's like this uh company kind of like a Google or like an Amazon where they fell during the tariff dip and I thought that made no sense. this thing. I think it makes some sense. Um maybe it's a little bit of an overreaction. We will see over the next 5 10 years. If you did enjoy
8:30 the video, please make sure to smash that like button and subscribe. Your support on the channel is greatly appreciated. And I'll see you guys in the next one. Peace.
