Can Lululemon Athletica inc. (LULU) Go Back to $80 Per Share?

Unlike Lululemon, this company has some debt in its balance sheet but it is minimal (i.e., around $60 million) compared to the company’s market value of $6.31 billion. Given the two companies’ current valuation, we can see that the market expects Under Armour Inc (NYSE:UA) to outperform Lululemon by a large margin because it is given a much bigger valuation than Lululemon. If the company actually accomplishes what the market expects it to accomplish, there can be a lot of upside for the company. For now, much of the upside is already priced in though.

Of course, there are some skeptics regarding Lululemon Athletica inc. (NASDAQ:LULU)’s future growth prospects. Some people believe that the company’s growth has to slow down because it conducts business in a very specific market with very specific products. Because the company’s products are not broad enough and the prices of these products tend to be on the higher-end, its growth outside of North America is usually questioned.

On the other hand, the company’s past successes should tell us that it can accomplish things in the future as well. Past behavior is the best predictor of the future behavior. Besides, as the company adds more male products to its portfolio and opens stores that sell men products only (scheduled for 2016), its addressable market will grow by 100% as it will include both genders.

A couple months ago, the company had to recall some products due to certain defects but this is now behind the company. I’m sure many lessons were learned in the process and the mistakes will not be repeated. The products of Lululemon Athletica inc. (NASDAQ:LULU) are not too complex to build and there isn’t that much room for error.

If the company reports strong earnings in the next quarter (like it did last quarter), the stock price can easily jump back to where it was last month. There is always a risk with smaller companies, but risk is usually associated with returns in the investment world.

The article Can Lululemon Athletica Go Back to $80 Per Share? originally appeared on Fool.com and is written by Jacob Steinberg.

Jacob Steinberg has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Nike. The Motley Fool owns shares of Nike. Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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