Lululemon Athletica (LULU)
From Cabot Wealth Advisory 5/25/10 Sign up for free Cabot Wealth Advisory e-newsletter
Lululemon Athletica (LULU), founded in 1998 in Vancouver, British Columbia, makes athletic clothing for yoga, dancing, running and other active endeavors. The company sells women's pants, shorts, tops and jackets in 106 company-owned and 13 franchised stores in Canada, the U.S., Australia and Hong Kong.
The company has distinguished itself from competitors by utilizing superior fabrics and unique clothing designs. The company works with athletes in local communities to obtain valuable product feedback.
Lululemon's sales increased 40% and EPS soared 55% during the last 12-month period. For the most recent quarter, same store sales increased an amazing 29% and earnings per share doubled. We expect sales to increase 23% during the next 12 months accompanied by a 33% jump in earnings per share.
Share price, as measured by Lululemon's price to earnings ratio, is expensive at 33.8 times our 12-month forward earnings estimate, but the company's exciting growth potential provides an advantageous investment opportunity. Lululemon has a strong balance sheet with no long-term debt and lots of cash. I recommend buying LULU now.
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Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Graham, Roy in 1969 pioneered the development of a computerized model that applies the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report From Cabot Wealth Advisory, 4/29/10. Sign up for free Cabot Wealth Advisory e-newsletter
In my mind, the market today is in something of a rolling consolidation—it began two Fridays ago when the news broke that Goldman was being indicted by the SEC on fraud charges. The major indexes took a hit, but rallied back ... before succumbing to some renewed selling pressure early this week.
Overall, this is still a strong bull market, but I do think some more potholes are ahead, at least for individual stocks. Whereas the major indexes might pull back 2% to 5%, many leaders can drop 10% or more, especially with earnings reports flying around.
My thought is this: If you can identify a market leader that's pulled back normally to its 50-day moving average, it should be bought. Then keep a relatively tight 10% loss limit on the shares, so if they truly break down, you'll be out without any major pain. Usually, if bought near the 50-day line, it'll lead to further advances.
One stock I'm watching for just such a scenario is Lululemon Athetica (LULU), which I highlighted in Cabot Market Letter last week. Here's some of what I wrote:
"One unique and fast-growing new retailing idea out there today is Lululemon Athetica (LULU), a small company with just 130 stores that sells yoga-inspired workout gear. Admittedly, to some observers the goods seem like high-priced sweatpants, but the company is growing fast for a few reasons.
"First, Lululemon caters mainly to women, a segment that's been overlooked to some extent by traditional retailers. Second, the quality of its clothes is top notch; most last a long time and feature special fabrics that wick away moisture and move snugly with the body. Third, and possibly most important, much of its gear blurs the line between fashionable and casual wear--many customers wear their products around the house or for quick errands out of the house because of the comfort.
"For the investor, the main attraction is the company's growth potential. Management believes 300 stores is doable, and then there's the company's e-commerce business! Also exciting is the fact that, on average, its stores in the U.S. are just two years old ... leaving plenty of room to boost sales as awareness grows."
Revenue growth is accelerating, and after a massive advance (fueled partly by its own earnings report on March 25), LULU has pulled back from 45 to 39 and change; the 50-day line is a little above 37 and rising gradually. Ideally the stock will settle down around here, or possibly a little lower, offering a good buying opportunity in the upper 30s. Watch for it.
Editor's Note: Michael Cintolo is the editor of Cabot Market Letter, which has been uncovering stock market leaders since the 1970s, like American Medical Systems back in the late 1970s: up 1,097%, or Triangle Industries: up more than 150% in the late 1980s, or Yahoo!, Amazon.com and more in the late 1990s! And Mike is using Cabot's time-tested market timing and growth picking system to select the very best stocks of this bull market, like Lululemon Athletica (LULU). Don't miss another issue! Subscribe today.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory Weekend Digest 4/10/10 Sign up for free Cabot Wealth Advisory e-newsletter
Cabot Top Ten Report Editor Michael Cintolo has been recommending a couple of stocks in the retail sector for a while now, from an urban footwear company to an upscale women's clothing store. But the one that caught my eye was Lululemon Athletica (LULU). Here's what Mike had to say about the stock when he first recommended it on March 15.
"Lululemon began life 12 years ago in Vancouver, British Columbia, as a designer and manufacturer of yoga clothing, and that remains its core business. But as the company has grown, it has expanded into apparel for running and general fitness, while preserving a human-centered philosophy that both customers and employees appreciate. Behind it all is founder Dennis Wilson, who serves as both chairman and chief product designer and owns 7% of the company. Today, Lululemon has more than 120 stores in Canada, the U.S., Australia and Hong Kong. It's grown revenues every year since 2003, and while the growth is slowing, which is natural as a company gets larger, we believe it can continue for years. The challenge, as the company becomes more of a thorn in Nike's side, is to maintain the corporate culture and maintain profitability, too. In the global slowdown of 2009, Lululemon's quarterly earnings declined for three quarters, but the third fiscal quarter, ended November 1, saw earnings roar back, as its after-tax profit margin hit 12.5%. Analysts are looking for earnings growth of 16% in 2010 and 34% in 2011.
"Many stocks that have broken out in recent weeks have done so in reaction to excellent earnings releases. But not LULU; earnings won't be released until March 25. And that makes this stock's strength even more impressive; it's climbing for the best reason for all, because people in the know see great growth ahead. The last three months have seen a top at 33, a climax of selling at 26 a month ago, and then the breakout, on high volume, last Friday. While you can buy here, waiting for a pullback might be wiser."
And Cabot Top Ten Report subscribers got that pullback a few days later, giving them a great entry point. Investors who bought in then have seen the stock trek steadily upward, hitting new highs this week. They're up 32% in just three weeks!
LULU may be a bit extended to the upside after this monster run, but since the stock is not well known and the company is bringing customers what they want, it has great potential.
Editor's Note: If you want the absolute latest on Mike thinking about Lululemon, watch his weekly Stock Market Analysis Video. Mike discussed Lulelemon Athletica (LULU), which had a great earnings reaction, popping the stock up 10% on good volume, and Las Vegas Sands (LVS), which has had huge volume on the upside, meaning lots of institutions are building positions. Also featured in the video are F5 Networks (FFIV) and Salesforce.com (CRM). Click here to watch the video: http://www.cabot.net/Videos/Stock-Market-Analysis-Video/2010/CWR-040910.aspx. For more information on Cabot Top Ten Report, click here.
Editor of Cabot Wealth Advisory
Elyse Andrews edits Cabot Wealth Advisory, a free email newsletter that offers independent, no-nonsense investment advice on how to build long-lasting wealth written by Cabot's analysts and editors. Every Saturday, Elyse writes the Weekend Digest, which includes her column and a summary of Cabot Wealth Advisories that readers may have missed during the week. Elyse is also a regular contributor to The Iconoclast Investor, a blog for Cabot editors and readers to share their views and interact with each other.
|Lululemon Athletica (LULU)
2285 Clark Drive
Vancouver, BC V5N 3G9 Canada
|Index Membership: N/A |
Sector: Consumer Goods
Industry: Textile - Apparel Clothing
Full Time Employees: 3,219
5/25/10 Lululemon Athletica (LULU): Sales and Earnings Rising
4/29/10 Lululemon Athletica (LULU): Watching for this Market Leader to Pull Back
4/10/10 Lululemon Athletica (LULU): Up 32% in Just Three Weeks