Headlines are being made that Lululemon (Nasdaq: LULU) beat earnings expectations and raised income estimates for the year. Their common shares were up about 13% today after their second quarter report.
Most of what I wrote about Lululemon, in terms of share valuation back in June 10, 2010 (when they announced their first quarter results) applies today – the company will have to execute high growth perfectly in order to justify their existing valuation.
It should be pointed out that despite their second quarter surprise, their valuation around the same ($2.8-$2.9 billion) as it was when I wrote my June 10 article, or about USD$40/share. They will need to continue achieving rapid growth in order to grow into the existing valuation. If not, you will see a significant haircut in the stock price.
Lululemon is a classic case of a well-run company that you do not want to own stock in.