Lululemon Athletica inc. (LULU): Billionaire Stephen Mandel Was Buying

Lululemon Athletica inc. (NASDAQ:LULU) slumped in March after the apparel company (somewhat humorously) discovered that some of its athletic ware was of unusually low quality, leading to a recall and bad publicity for a company whose stock was thought of as being overvalued due to hype in any case. Billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital apparently saw this as an opportunity to increase its holdings; a recent 13G filed with the SEC shows the fund with 5.6 million shares, or 5% of the total shares outstanding. At the beginning of January, Lone Pine had owned 4.8 million shares of Lululemon Athletica inc. (NASDAQ:LULU) according to our database of 13F filings (find Mandel’s favorite stocks). The stock has risen 11% so far in April and is now trading about even with where it was before the recall.

Lululemon Athletica inc. (NASDAQ:LULU)’s fiscal year ended in early February; according to the 10-K, revenue rose 37% for the year and this growth rate only slowed a little bit during the fourth quarter, when sales were 31% higher than a year earlier. The company’s reports indicate that about half of this growth came from same-store sales, with about 40 new locations being opened worldwide for the year. 2012 earnings were up 47%, also a very strong figure. We would note that the fiscal year had 1 extra week, but this still represents high growth.

Of course, as we’d indicated earlier the stock is valued quite expensively as the market anticipated continued high growth, with a trailing earnings multiple of 38. For the forward fiscal year (ending in early February 2015), Wall Street analysts expect earnings per share to rise to $2.56. That still leaves Lululemon Athletica inc. (NASDAQ:LULU) at a P/E of 27. The most recent data shows that 34% of the float is held short.

Lone Pine had actually been the largest holder of the stock by a considerable margin out of the filers we track in our database of 13F filings, which we use to develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year). Tiger Consumer Management, managed by fellow Tiger Cub Patrick McCormack, reported the next largest position for Q4, of about 900,000 shares (see McCormack’s stock picks). David Stemerman’s Conatus Capital Management increased the size of its position by 47% between October and December to a total of about 880,000 shares (check out more stocks Conatus was buying); Stemerman is actually a former employee of Mandel’s himself.