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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Looking At LULU 14 comments
    Dec 12, 2013 8:15 PM | about stocks: LULU, NKE, UA, ADDYY

    Lululemon (LULU) makes expensive and occasionally transparent spandex into clothing, notably yoga pants.

    (click to enlarge)

    Recently, there have been concerns surrounding whether or not certain LULU yoga pants were excessively sheer/see though.

    (click to enlarge)

    However, the more important question is not whether their pants are see-through, but whether their stock is expensive. I think that it is worth looking at. So far, it has flopped up and down this year:

    (click to enlarge)

    The price is still high, hopes for their earnings are still optimistic, growth prospects are dimming, and competition is strengthening. LULU margins will contract as Nike Inc (NKE), Under Armour Inc (UA), and Adidas (OTCQX:ADDYY) focus on their yoga products. As competition eats away at LULU's margins, its P/E ratio, currently still north of 30x, should be closer to 20x.

    (click to enlarge)

    At 20x, the stock would trade between $30-35 per share which is probably a more reasonable valuation. Meanwhile, LULU's CEO is in over his head. He has gone back and forth between long periods of unemployment and running much smaller companies. LULU is in a desperate battle to keep its place in the market.

    Stocks: LULU, NKE, UA, ADDYY
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Comments (14)
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  • I couldn't get past the photos. What did you say?
    12 Dec 2013, 08:28 PM Reply Like
  • Chris - no disclosure here, you short? If not, why not? Completely agree with your call.
    12 Dec 2013, 09:00 PM Reply Like
  • Author’s reply » Yep; short. However, when I'm not short something that I've expressed a negative view on it is usually because I've written calls instead. -C
    12 Dec 2013, 09:13 PM Reply Like
  • Even Wal-Mart has its scope aimed at Lululemon:

     

    http://bit.ly/1bBMo3o
    12 Dec 2013, 11:36 PM Reply Like
  • Author’s reply » That is wrong.
    13 Dec 2013, 06:19 AM Reply Like
  • Thank you for the levity. This material should be on comedy central.
    13 Dec 2013, 09:59 AM Reply Like
  • To outperform LuLu in the American yoga clothing market, all Wal-Mart needs to do is to start a line of Plus-sized yoga clothes with Kevlar reinforced seams at the buttocks, stomach, and upper arms.

     

    Disclosure: Long Walmart and the welfare state.
    13 Dec 2013, 02:58 PM Reply Like
  • What WAS she thinking????????
    20 Dec 2013, 09:52 AM Reply Like
  • I'm going down to the yoga studio around the corner from my loft first thing tomorrow morning for some research, a stretch and the view.
    13 Dec 2013, 01:09 AM Reply Like
  • Yes, definitely some in-the-field research in order here. I want to cover all the angles. I don't want anyone stretching the truth and giving this company a bum rap. I prefer transparency and I want to get to the bottom of this. These pants are supposed to provide sheer comfort, but if there is a problem I intend to expose it.
    13 Dec 2013, 10:01 AM Reply Like
  • Well done sir, well done. Bravo!
    13 Dec 2013, 04:40 PM Reply Like
  • LOL
    14 Dec 2013, 01:12 AM Reply Like
  • Very good call Chris. Chapeau!
    How do you see LULU at the current 52 week low price?
    While far from being cheap yet, at around 21 times this years lowered projected EPS and the overwhelming negative sentiment surrounding it , it might be stabilizing around here +/- 10% in my view.
    17 Jan, 11:40 PM Reply Like
  • Author’s reply » Good question. It is not my favorite short (that is IPO for this year) but it has meaningfully closed the gap between price and value. Your view sounds sensible to me.
    18 Jan, 07:44 AM Reply Like
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