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Bottom-Up Investor Steve Mandel Holds Bottom-Baring LULU in Crack Crisis

March 22, 2013 | About:
Sally Jones

Sally Jones

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Yoga buffs gather round. In yoga class, there’s nothing worse than taking “downward dog” position with your posterior high in the air and wondering if the people in the row behind you can actually see your “root chakra.” Take heart, because those people may also be wearing the popular Lululemon (LULU) brand’s latest quality nightmare, inadvertently see-through yoga pants. Lululemon’s CEO Christine Day was to the point: “The only way you can test for the pants is put the pants on and bend over,” according to The Star. The company’s recent quality glitch could cost the company as much as $67 million this year, according to the company's CFO John Currie. LULU’s stock price began to dive on March 15, 2013, as the news spread.

Cashing in on “cultural creatives” as a consumer sector and addressing the needs of a new generation of yoga lovers across the US, this chic brand of athletic performance clothing urges us to “get off the fence” and “take the road less traveled.” When the yoga and fitness craze expanded, Lululemon began delivering something consumers really wanted and could not easily find, chic workout gear. We could now trade in our grungy sweat pants for a slimming style.

Billionaire hedge fund investor Steve Mandel, founder of Lone Pine Capital LLC, is one Guru who recently added to his LULU position, in spite of its recent quality issues. Guru Jim Simons reduced his LULU stake by 95.63% and Pioneer Investments reduced its stake by 50%, all as of quarter ending Dec. 31, 2012. Lone Pine’s website is closed to the public, but various sources say that the fund has $20 billion in assets under management. With a reputation for thorough analysis and “bottom-up” investing, Mandel focuses more on understanding a company’s fundamental business than its macro environment of events, indicators, and economics.

As of Dec. 31, 2012, Steve Mandel owns 4,830,386 shares of LULU, valued as $368 million, and accounting for 2.3% of his equity portfolio. Steve Mandel added his positions in the Sept. 30, 2012 quarter by 13.19%, again in the Dec. 31, 2012 quarter by 1.28%.

Lululemon Athletica, Inc. has a market cap of $7.23 billion; its shares currently trade at around $62.31 with a P/E ratio of 39.64 and P/S ratio of 7.5. Lululemon Athletica Inc. had an annual average earnings growth of 54.7% over the past 5 years, and is ranked higher 98% of 41 companies in the industry for revenue.

Mandel’s holding history also shows LULU’s dramatic price ascent since 2009:



GuruFocus performed a financial and performance checkup on LULU and found mostly good signs: Lululemon Athletic, Inc. has no debt, and the company’s operating margin is expanding, usually a good sign. LULU’s P/B Ratio (12.14) is close to a two-year low of 11.21, and its P/S Ratio (7.5019) is close to a two-year low of 6.89. One warning sign is that the company’s assets are growing faster than its revenue growth. GuruFocus rated Lululemon Athletica Inc. the business predictability rank of 3-star.

Lululemon Athletica Inc. has some of the highest margins in the retail industry.

Mandel’s other top buys, sells and holdings:



About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

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