Expectations and Branding

This is a follow up post regarding LULU as this has generated the most discussion. I believe this club is working well if you have to defend your thesis and in my opinion this is time well spent not "navel gazing". If this was a no-brainer then maybe I've missed the point.

The issue boils down to the fact that you believe that LULU is a strong brand and will continue to grow like other strong brands. This takes some level of forecasting and your confidence in it is maybe your 'investment bias'. My investment bias is that I am pessimistic about whether this is as strong a brand as other growth companies before it. I suppose only time will tell.

The second thing that guides me in my investing is expectation. As you know I'm not a great believer in EMH (efficient market hypothesis), but mostly that doesn't matter. If LLL is suffering from overhype be it from management, analysts, or the masses, then maybe it is over valued. The only thing that will propel this further is its growth in its brand. i.e. good earnings growth and not P/E expansion. There is a pratical limit to P/E expansion as there is with earnings growth (althought I don't know where this limit is)

Now with its recent drop last week, I believe sentiment maybe changing. A number of analysts have downgraded LLL to 'neutral' and UBS has downgraded it to sell. I love these analysts because they are almost always late and mostly wrong especially at turning points. Here is a link to the downgrade: http://www.newratings.com/analyst_news/article_1637586.html

This is when I love to do my investing. When the sentiment is down on a particular industry or stock. This maybe the best opportunity for this 'growth' stock with analyst downgrades and general market gyrations.