Lululemon Athletica (NASDAQ:LULU) stock has been the North Star of retail clothing stocks for more than three years now, averaging more than 37% annually over that time.

In the past 12 months, the stock is up 47%. Year to date, LULU stock is up 55%.

And the crazy thing is, with this strong, consistent multi-year growth, the price-to-earnings ratio on the stock is below its average annual stock price growth.

That means it’s trading in line with the market’s valuation of this company, even though every recent quarter Lululemon stock has blown past analysts’ expectations.

Its recent first-quarter numbers are a perfect example. Not only did LULU stock easily beat earnings and revenue expectations, but it registered a 14% increase in same-store sales compared to Q1 last year. The market was expecting 11.6%.

Same-store sales is where a lot of retailers have been falling down in Q1. Consumers continue to spend but, in many other retailer stocks, single-digit same-store sales are doing well. Outperforming expectations like this is a very bullish sign.

What’s more, LULU stock raised expectations for the year. This has also been the downside of some companies who have posted strong numbers for the quarter but then lowered expectations for the rest of the year.

In Lululemon stock’s case, there may be a weaker-than-expected Q2 if the trade war continues. The latest round of tariffs began June 1, so their effect will be felt moving forward, especially if the U.S. puts tariffs on all Chinese goods. This is the only real curve ball ahead for the company.

But while LULU stock continues to build its base it is also diversifying its core market.

Lululemon Stock Is in Expansion Mode

Initially only owning premium athleisure for women, LULU is now in expansion mode. It has built out its e-commerce business and is expanding its brick and mortar presence.

Along with that expansion Lululemon has begun to offer yoga classes in some stores. It also keeps a tight rein on its brand, so it has complete control of its margins. This is one of the secrets of its success.

Lululemon has even expanded its brand to include men’s and children’s lines as well. It has also launched a membership program that’s still in beta testing, and just this week announced that it’s going to begin a line of personal care products with Sephora.

The line of deodorant, skin care, face moisturizer, and dry shampoo will be available in 50 stores in North America as well as online at lululemon.com, select studio partners, and Sephora.

Currently, my Portfolio Grader tool rates LULU stock a B, given its strong run this year and the question marks around a slowing economy and the trade war with China. But it sounds like the Federal Reserve will step in if necessary to keep the economy on track, alleviating some risk moving forward.

— Louis Navellier

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Source: Investor Place