Deep Value Investing
Value Investor, Long-Term Compounding
Lululemon is an obvious pass despite Michael Burry going long, because it has no moat and is not a game-changing company even if it looks undervalued. The quality of its sector can't compare with tech, health or communications, tariffs make the outcome unpredictable, and the bottom is unclear, putting it in the too-hard pile. x.comÂ
Lululemon created its category but has no moat: Amazon dupes are indistinguishable from real Lululemon pairs, even to a regular customer. x.comÂ
Lululemon is not worth bottom-fishing even though the bad news will eventually be priced in, because forward estimates keep falling and a bottom is hard to time before fundamentals bottom. The business is not a zero: its stores are still busy, if less than before. There are better places to look for a bargain. x.com x.com x.comÂ
Lululemon is an 800lb gorilla worth defending despite bad management and the politics around its skin-tight leggings. x.comÂ
Lululemon has no moat, extremely low switching costs and some of the fiercest competition of any sector, so it is not the screaming buy Michael Burry takes it for. The stock is 17.4% of Burry's portfolio, and he often seems more focused on being right as a contrarian than on being right. x.com x.comÂ
lululemon's 9.4 times forward earnings looks like a value trap, because US brand fatigue may be structural rather than cyclical. A 44% drop this year and a low multiple invite bets on mean reversion that may not come. x.comÂ
Lululemon trading at about 7x earnings is absurdly cheap, among the most mispriced stocks around. x.comÂ
Lululemon is a stock to avoid around earnings, good or bad, as apparel names almost always are. Too many investors were fooled by its compounder story coming out of Covid. x.comÂ
Lululemon's problem is its pricing, not a weak consumer. Shoppers are fine but aren't buying its products because the prices no longer make sense, which spells trouble for its margins. x.comÂ
Lululemon's sell-off may be overdone, with the stock at about 1x EV/sales, below its 2009 financial crisis lows. It was absurdly overvalued during the Covid consumption binge, but this multiple looks too punitive for an athleisure brand. x.comÂ
Lululemon is not that tempting even after falling from $500 to about $100, because cheap does not mean buy. At about 1x sales the market prices in roughly zero growth, and analysts expect about $13 of EPS by 2029; at an 8x P/E that is only about $104. Agreeing with @HKIStrategies that the stock may simply move sideways for years, that would still mean losing money to inflation. x.com x.comÂ
