The report of lululemon is updated and rated Speculative Buy at U.S. $396.
It’s very high quality company but is expensive in relation to earnings.
It so happens that I rated it the same and had the same thoughts almost one year ago. Back then it was exactly $100 cheaper at $296. Back then I estimated the higher end of its intrinsic value to be $324. This year the very same formula with the same growth rate projection estimates the higher end of its intrinsic value to be $424, exactly a $100 higher as it turned out. But how could its estimated value jump by $100 or about a third in one year? The reson is that it’s earnings per share were up by about a third in the past year. So If I apply the same growth rate and same terminal P/E assumptions then the estimated value comes out about a third higher.
I very much doubt that the earnings and price will rise by another third this year. But over time earnings will rise and in a more volatile fashion the stock price should eventually follow.
Over the past few days as I read and looked at the results of lululemon I was truly impressed and amazed at their growth and success. And I thought about that success in sharp contrast to the very mediocre results of some companies that I look at including Melcor Developments, Aecon Group and Andrew Peller.
In most aspects of life we talk about average. The average consumer, the average income. In reality, the bell curves tend to be wide. In corporate performance there is a a very wide dispersion of earnings results for companies.
In many cases it may be better to pay up for quality. And it’s a good idea to keep some cash investments ready to pounce when great companies occasionally come available at lower prices.