Lululemon valuation

I notice that John Hempton of Bronte Capital is scratching his head with Lululemon’s (Nasdaq: LULU) valuation.

I’ve been scratching my head since they had a $2.8 billion market cap, and now they are trading at $9.2 billion.

They are headquartered in Vancouver, British Columbia, Canada, which is right in my backyard.

The after-tax profit margin (19%, trailing 12 months) is just incredible for a clothing company. It is right up there with handbag producer Coach (NYSE: COH), although in the latter’s case they have a somewhat more reasonable valuation.

In both cases, understanding women’s sense of fashion is the key investing variable. What’s the next meme after yoga pants?

1 thought on “Lululemon valuation”

  1. i have been scratching my head about this for the past while as well, and i buy lulu too. now that i have quite a collection though, i don’t really need more. from the consumer pov, they are quite smart in that they keep coming out with new designs and colours, and everything is in limited quantities. their cute designs tempt the consumer however, their price point is set too high and their discounts, if and when, are minimal (10-15%). they are trying to break out in new markets (international, men’s line, clothes for activities other than yoga (ie, ballet, tennis, etc). however, even as a regular consumer of lulu, i think their niche is too small, and i find the stock & target market to be too risky for me.

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