I am adding a winning company to our buy list: Lululemon athletica ltd. (LULU); the company is well known as a retailer of high quality “athleisure” clothing, observes Shawn Allen, contributing editor to Internet Wealth Builder.

The fact that Lululemon's products are proprietary — along with their brand reputation — allows them to sell at very lucrative margins.

While the head office is in Vancouver and its design activities are headquartered there, Lululemon is registered as a U.S. company and trades on Nasdaq and not in Toronto.

It has 521 company-operated stores in 17 countries. The locations of the stores are 60% in the U.S., 12% Canada, 11% China, 6% Australia, 3% United Kingdom, and 8% spread over 12 countries.

With the pandemic store closures, the company guaranteed that employees would still be paid. This was in keeping with its brand reputation as a company that lives by more progressive values.

During the pandemic, the company was very successful in moving sales to the online platform. In 2020 it acquired MIRROR, an online fitness business, at a cost of $453 million. The net store count was increased by 6% in 2020 and 70% of the net additions were outside of North America.

The price to book value ratio is unattractively high at over 16 times — although this may possibly be justified by the high ROE and high growth.

The trailing adjusted earnings p/e ratio is very high at 58 but that's partly due to the temporarily lower earnings caused by the pandemic. And the forward p/e based on projected 2021 earnings is also very high at 48.

The ROE is very strong at 33%. There is no dividend. Revenue per share growth in the past five fiscal years has averaged 18% and earnings per share growth has averaged 20%. This is despite the impact of the pandemic. Overall, while the ROE is proof that this is a very profitable company, the value ratios are not attractive.

The company expects to add 40 to 50 company-operated stores in 2021. This will increase the store count by about 9%. This stock is expensive in relation to earnings but has a strong history of growth that seems likely to continue and to result in a continued high p/e ratio. Buy a modest position and continue to monitor.

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