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1 Reason To Avoid Lululemon

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Lululemon

1 Reason To Avoid Lululemon

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Lululemon (LULU) due to its huge valuation.

Before I get to that though I need to tell you what Lululemon does.

Has it seemed like more and more woman – and men – have been wearing leggings in recent years?

That’s because they have.

In large part due to Lululemon popularizing the wearing of leggings for working out.

Lululemon creates, produces, and sells athletic apparel for men and women… It did such a great job that its now got a $42.2 billion market cap as of this writing which is up huge this year.

So far this year its stock price grew from $233.42 per share on January 2nd, 2020 to $330.38 as of this writing.

This is an increase of 41.5% this year so far.

And it’s also up enormously from its 2020 lows during the first stages of the coronavirus pandemic in March from $138.98 per share.

This is an increase of 138% from its low this year to its current share price.

It’s great for shareholders… But if profits and cash flows don’t rise in line with the rapid rise in share price it leads to stocks being enormously overvalued.

And Lululemon is.

  • Its current P/E is 78.6.
  • Its current P/CF is 62.4.
  • And its current forward P/E is 77.5.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued…

Lululemon crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have a better chance of earning high investment returns owning its stock over time.  And these combined make the stock a less risky investment.

With Lululemon stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

Lululemon will continue growing and being a leader in this space.

But I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.

If you’re buying Lululemon stock today there’s zero room for error due to its huge valuation.

For this reason, I recommend you stay far away from investing in Lululemon… Even though it’s an otherwise great stock.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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