Is Lululemon More Like Under Armour or Chipotle?

There’s a point with every growth company, at some point along the way, that things get screwed up and the stock breaks...

The big question for investors at that point is whether it’s a breather... or a break.

Enter Lululemon, which has tumbled 22% since reporting earnings last month and nearly 30% since hitting its all-time high in December.

Lulu has been a topic of conversation several times on our Beats Roundtable at Wall Street Beats morning call, as it was yesterday with retail analyst Jeff Macke, the consummate Lulu bull. Jeff has been a fan for years. He was pounding the table on it when it first rolled out its men’s line, and put his money where his mouth was: Not only wearing the clothes, but as an investor for around eight years, buying the dips – even the big ones – along the way.

This time, he isn’t. Or as he put it on our call...

I'm not sure if it's a short yet. I'm not ready to go there. But I don't feel really compelled to buy it here. Normally my instinct when you say ‘down 30, 40 %’ is to start loading the boat on almost anything and ask questions later.

That’s where this gets interesting...

A Double Sell

It’s one thing when longtime bulls pause in their buying when stocks fall. It’s another when longtime bulls don’t just sell, but go short. (A double-sell!)

That’s exactly what another friend, a die-hard growth investor – who has owned Lulu twice as long as Jeff – has done. (I patched the two into a call later in the day to compare notes, which despite their different opinions on shorting the stock, were eerily similar.)

To say that this guy anguished over not just selling it, but shorting it, would be an understatement. “It hurts my stomach to think that I’m selling it because I have such an attachment to the company, the product, the management and the stock,” he says.

As part of his analysis, he dug back in his own history and asked the question he finds himself asking with these types of situations: Is it Chipotle, whose tumble a few years ago turned out to be a mere breather exaggerated by a number of internal issues...

Or is it Under Armour, the Nike wannabe that lost three-fourths of its value and never recovered. There were some accounting issues, but it’s real challenge: After a series of execution flubs, it was very clear the company and brand had hit the end of their growth curve.

After analyzing Lulu’s most recent quarter, and watching the stock, let’s just say that he concluded… (click here to read the rest.)