Lululemon Athletica (LULU)
Lululemon Athletica (LULU) was all the rage for several years. But the thing about clothing retailers is they tend to follow the same pattern. They hit the market, they grow quickly, and the stock takes off.
LULU stock was a ten-bagger between 2009 and 2012. The stock hit a high of $81 about a year ago, and today sits at $45. That’s because the trend of retail clothing stocks has another stage– the massive sell-off. Something always happens. Retail buyers are a fickle lot, and the market is littered with retail stocks that have lost 90% or more of their value.
LULU stock now has a new CEO as it struggles to deal with competition from Under Armour (UA) and Nike (NKE). The problem underlying the company is same thing that plagues all retail — the need to constantly innovate with new styles and fashions. That isn’t so easy, and if a company misses what its base wants, that base will run to the next store in the mall. Going on the theory that a company cannot please all of the people all of the time, that fall from grace seems inevitable.
LULU’s earnings are expected to be flat this year, but rebound next year. With projected 16% long-term growth, LULU stock trades at 21 estimates, backing out its $700 million in cash. That’s way overvalued. Sell.