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Is David Einhorn Short Lululemon?

September 19, 2012 | About:

Yesterday shares of Lululemon (NASDAQ:LULU) fell sharply due to rumors that hedge fund manager David Einhorn has started shorting the stock.

Einhorn has made a name for himself with high-profile short positions such as Lehman Brothers and Green Mountain Coffee.

Short-sellers have been burned on LULU that has soared over 50% over the last six weeks.

After reporting Q2 results, LULU shares surged. The company reported net revenue for the quarter increased 33% to $282.6 million from $212.3 million in the second quarter of fiscal 2011. In addition, comparable stores sales for the second quarter increased by 15% on a constant dollar basis. Perhaps the only downside is that

the gross profit margin declined to 55.1% for the quarter as compared to 57.5% in the second quarter of fiscal 2011.

The reason why short-sellers have targeted LULU is based on valuation metrics. The company updated guidance for 2012 to a range of $1.76 to $1.81 versus the analyst estimate of $1.63. With the stock trading at $75, the PE ratio of 42X has worried many investors.

However, if Einhorn is indeed short LULU he most likely sees something that the market does not generally recognize. Perhaps he sees growth stalling, aggressive accounting standards or massive competition from companies like Nike.

Since Einhorn has such a good track record with short positions, it is worth monitoring his potential short position in LULU.

Rating: 3.5/5 (10 votes)


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