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Lululemon Athletica (LULU) Stock Too Expensive at Current Valuation

Artisan Mid Cap Fund recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -11.55% for the quarter (investor class), outperforming their benchmark, the Russell Midcap Index which returned -27.07% in the same quarter. You should check out Artisan Mid Cap Fund’s top 5 stock picks which helped them beat the market by nearly 16 percentage points. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Artisan Mid Cap Fund highlighted a few stocks and Lululemon Athletica Inc. (NASDAQ:LULU) is one of them. Lululemon Athletica is an athletic apparel retailer. Year-to-date, LULU stock gained 6% and on May 11th it had a closing price of $245.62. Its market cap is of $31.98 billion. Here is what Artisan Mid Cap Fund said:

“We also trimmed our position in Lululemon on valuation and began harvesting our positions in Fidelity National Information Services and Boston Scientific as their market caps have reached the limit of our mid-cap mandate. Designer and retailer of yoga-inspired apparel Lululemon has delivered strong results in recent years. We have held it as we anticipated its upgraded management team would strengthen all operational functions— including supply chain, product design, e-commerce, digital marketing—and drive higher traffic in both brick-and-mortar and online stores. These efforts have borne fruit and have produced accelerating sales and profits. Furthermore, we believe the company’s core women’s athletic category as well as its newer initiatives (men’s, international, casual wear) all have solid runways ahead. That said, the stock’s performance early in the quarter (pre-COVID-19 disruption) seemed to fully reflect these expectations, and we have learned it’s best to use extra valuation discipline when it comes to retail growth stocks.”

In Q4 2019, the number of bullish hedge fund positions on LULU stock decreased by about 10% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Artisan Mid Cap Fund.

Disclosure: None. This article is originally published at Insider Monkey.

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