LULU has nearly a $5 Billion market cap on forward sales estimate of $825m- Let's compare to a few other retailers
JCrew - bought at premium for less than $3B - 2011 estimate- $1.9B Sales
Under Armor- $3B - 2011 Sales $1.3B
ever heard of a company called Gap (old navy, banana) ? Gap has a $13B market cap ($15B sales in 2011)- Gaps is a perfect example of a company that has reached its full growth potential after more than a decade. It's not unusual to see a 1-1.5x sales for a mature specialty retailer.
What's the real sales potential for a specialty retailer of fitness apparel? I would propose that even if they can grow sales by 500% from ~$700B to $3.5B at best LULU might warrant a market cap of $5B (where it is today). That's a significant amount of growth to achieve in what many might consider a finite market.
Technically speaking, LULU is 37% above the 50 dma now and will have a difficult time outperforming the indices from here
Revenue 84 149 275 353 453 627
LULU Growth 77% 85% 28% 28% 38%
As you can see, once you get to the $750m in sales, revenue growth gets harder to come by. Even if we assume that LULU grows revenues by 35%,35%,30%,30% and 25%, over the next 5 years respectively, it's tough to justify today's valuation.
Let's just suppose revenues scale massively as noted above-
$627m, $846m, 1.142m, $1.485m, $1.931m, $2.413m
At year five, growth is beginning to slow and valuations coming down to earth - 2x sales would be generous. That leaves us with a 2x $2.4b = $4.8b market cap. Let's not forget dilution from secondarys, stock/option issuance, etc.
Bottom line, 5 years from now LULU will likely not be trading at a market cap of more than $5b - where it is today. Most likely will be trading below $1B cap
I'm restarting my short position tomorrow am (after guidance raise)
I've been short the XRT which has fallen 6% since late Dec.
LULU with the a/h pop is back just a shade under the $74 high @ $72 now.
You will be right eventually but there are a few more blow out quarters before this run is over. At this point, I do not think people are buying the stock because of its value........ which cannot not be justified by any reasonable standard.
Company valuation absurd.For those that are lucky enough to be long hope they are smart enough to sell before short squeeze over and reality sets in.I have been considering shorting since low 50's but fortunately decided to sit out and watch.I am tempted now but best to stay out of the way of a moving freight train.