Hard to justify current valuation lulu Lululemon athletica(Lulu)Increased 12% today after firm provided updated q4 2011 guidance.The company increased both its sales and eps guidance ranges with sales guidance moving to Ralph Lauren Polo Shirts Outlet Sale canada numerous $358mm to $363mm from $327mm to $332mm.The eps range expanded from prior guidance of $0.40 which can $0.42 in which on the way to allow them up so that it will $0.47 when you need that $0.49. At the midpoint of garden sales guidance has been increased to $360.5mm by means of $329.5mm, A trustworthy 9.4% raise and the midpoints of the EPS guidance imply a move from Ralph Lauren Outlet $0.41 per uncover to $0.48 per discuss, A 17% amplify.This not only means stronger sales, within cost. Post the upwardly revised guidance and immediately after stock price reaction lulu sits at just under $60 per share.This implies a market capital of $8.6 billion and an online business value of $8.3 thousand. From a valuation view lulu is trading at almost 30x ltm ebitda and 50x estimate 2011 earnings, which will increase in response to the increased guidance.Adjusting the wall street consensus estimate by the rise in guidance still implies a rather lofty earnings multiple of 48.5x. Can this value be justified? Lulu ended the third ralph lauren hats quarter of 2011 with 165 saves.This is a relatively small store base that could easily double over launched. To assess lulu valuation think about a doubling of revenue as a proxy for a doubling of the store base.Certainly, this is lack of, but sometime the simple are often very revealing.Lulu is expected to just under $1bn of sales in 2011, so let assume in the course of the future they generate $2bn.Lulu currently has an ebitda margin of close to 30%, but we need to give the company credit for further efficiency as it grows so let us assume ebitda margins increase to 40%.Economic in $800mm of ebitda($2bn financial durations 40%). Based on the current enterprise value of the company meaning an enterprise value to ebitda multiple of 10.4x.For comparison purposes consider that nike(Nke)Nowadays trades at 12.8x or ralph lauren(Rl)From 10.7x.So our lulu times 2 is per nike and ralph.Though, so i don get charged with cherry picking let also note that under armour(Ua)Markets at 22x.In spite of this, under armour is a growth story like lulu and represent a more company. ralph lauren city polo So have we justified lulu current worth?My end is that at its current valuation lulu would be fairly valued if sales were doubled and ebitda margins increased by one third of their current levels.Even if you do, an asset today would result in a return of zero.Which means that, if you are buying lulu at $60 you must believe that my assumptions are too orthodox.If you suspect they are, all i can say is i wish you all.

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