LULU (part 2)
http://stocks.us.reuters.com/stocks/estimates.asp?symbol=LULU.O&WTmodLOC=L2-LeftNav-23-Estimates
I would have posted this as a comment but sometimes links are not clickable in comments.
They've blown away estimates, they are increasing guidance, and analysts are increasing estimates. This is called multiple expansion. When do we take a vote?
posted by Junk Bonds @ 10/31/2007 11:32:00 PM
3 Comments:
I vote for investing some money in LLL. The question is how much?!
There seems to be a real sense of urgency with regards to this stock that I cannot justify. I have nothing against LLL and in fact if it can manage to grow beyond its niche cult then I agree we may have a double or triple. What no one has managed to explain to me is what metric with regards to price is important. I can accept that the PE maybe useless but what about SSS. Can you tie this in with the current price? What is compelling today - because it dropped 5% today. You talk of multiple expansion but you have to admit that its multiple is already high.
My beef with growth stocks in general is that they are priced for perfection and any hiccough along the way will cause it to tank.
Another question is when do we take profits on this as exit points are as important as entry. This is often the hardest question to answer based on personal experience.
The vibes I'm getting from your enthusiasm is that we need to do this now, but I fail to see the urgency. Yes its cheaper today than yesterday which is good. They just released quarterlies so we have at least some time prior to the next quarter.
Lastly, what are the downside risks with this particular pick? Can we count on it's success on the backdrop of some gathering clouds over U.S. retail? Does macro analysis even help with growth stocks like this? Do we have evidence that growth stocks can prosper even during a recession which the U.S. is surely in.
I retain the right to be pessimistic but I'm still open to this particular investment. Please forgive my aversion to growth stocks and with your help I'll surely get over it :)
Des, please leave personal judgements like "real sense of urgency" and "vibes ... from your enthusiasm". That's completely unnecessary, so let's stick to the objective facts. I'll try to answer whatever fair questions you have to ask.
1) How to tie SSS to valuation? I gave a link to the Motley Fool research which explains this.
2) "priced for perfection"?? All stock (or bonds) are the NPV of future earnings. So in this case, LLL is priced for a future stream of profits as determined by analysts. When a stock beats expectations, or raises estimates, the future profit estimates are readjusted and the price adjusts upwards. If they miss estimates, the same happens. This is no different for any non-growth company. If you followed the link to the Estimates and Finacial Highlights, you can see they are conservative.
3) WHat is the exit point? When SSS start contracting. I'm sure GOOG investors who got in at $100 are looking for the exits since they know it's going to fall below $700. If you get in on growth at a good price, the exits are not as important as cyclicals.
4) US macro environ? I've been following LULU from the time it was a 2 store op in Vancouver in the mid 90's. Good managment has guided the growth to a $2.3Bil Mkt cap company, thru various economic cycles. As you note, it is a brand, and strong brands work thru recessions. The SBUX shorts predicted during the 90's recession, people would stop buying $3-4 coffees, but that didn't happen due to the strong brand. I'm seeing it again with LULU, there's been no price pressures, and they are creating a brand community. So yes, I have seen evidence this will prosper thru the lean times.
I retain the right to be optimistic, although with help, surely I'll get over it! :)
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