r/valueinvesting
Lululemon - looking for disconfirming views
Author holds LULU for its margins and China growth, but seeks bear cases fearing a Nike-like decline after buying at a high price.
- Strong brand recognition and high-quality products built over 25+ years.
- Solid financial metrics including 40%+ gross margins and great ROIC.
- Ongoing growth potential in the Chinese market.
- Risk of a secular decline similar to Nike's recent struggles.
- Author acknowledges buying at too high a price, indicating potential valuation risk.
The business has been around 25+ years, has a brand recognized in many places, makes good quality items, is growing in china, and still has 40% + gross margins. And also great ROIC. Their store level worker incentives used to be quite aligned and good for business (not sure if that's changed or not).
I'm invested (although in hindsight I bought it at too high a price) but I'm looking for contradictory opinions. Why am I wrong?
Sure it can be the next Nike and go down the shithole but at sub-10 PE seems like still value > price.
Please can someone give me good disconfirming evidence so that I can see the other side better? And assess where I might be \very\ wrong?