Invest in Lululemon??

So last Christmas my little sister flew out of her nest in Salt Lake City to visit.  I was loving it because we always have a great time together and it had been months and months.  We didn't have a lot of days so we wanted to figure out what to do for fun.  What was at the top of the list?? Shopping at a store I had never even heard of... Lululemon.  I didn't even know how to pronounce it right because I thought it was French.  Okay so why do I bring this up?  Well, as an investor, I was definitely curious what was so great about Lululemon that my sister was ready to elbow me out of the way and leave me in a ditch to get there.

As it turns out, I was definitely impressed.  The store was loaded with what appeared to be very athletic type women with fat wallets.  And I was pretty shocked to see that my sister had no problem paying almost $100 for a T-shirt.  It was easy to see they are doing something right.

So, bringing this back to my blog theme, I want to point out that this is a great example of how you can find great investments.  Let the hedge funds invest in all the obscure companies that nobody understands.  Find companies that you can touch, feel, experience, and understand.  Most of the companies I have in my portfolio are that way.  As an example, I own McDonalds (MCD).  It's kinda boring, but I'm a customer! There's almost no better way to evaluate a company.

So back to Lululemon.  Now that it's passed my touch test, how do I see whether to put money into it?  Well first you want to check your overall portfolio and cash holdings to make sure you will still maintain risk balance and the diversification you are aiming for.  Beyond that, don't waste your time on endless charts and reports, but spend a good 30 min to an hour viewing the information available on Yahoo Finance as an example.  Here's what I saw :

First I saw a video clip with an analyst describing why Lululemon is successful.  They target the Yoga clothing market, and they make the most comfortable clothes on the planet.  That echoes what my sister was saying, because apparently it's like wearing a bubble bath.  The next thing I'll look at is the stock price chart over the last year and last 5 years.  Now this is where I get mad at my sister for visiting so rarely, because had she introduced me to Lululemon 2 years ago I'd be rich!  The stock has doubled countless times.  Next look at the financials to see if it's all making sense... a P/E ratio of 40 is pretty good for a fast growing company.  Revenue over the past 3 years has been growing intensely.  No dividend, which is typical for a growth company. They have plenty of cash and no red flags that I can see on debt.  

So do you buy it?  Well here's what I do. I already know I want it. This is a "winning" company that will likely continue to beat the competition.  Now just because I want it doesn't mean I think the stock price is a good value.  This stock has already doubled countless times and people have made a lot of money.  This in itself is a red flag.  That means the stock could fall really far if there is bad news.  As an example of this, check out last years stock chart for Chipotle Mexican Grill (CMG).  So what's my strategy? I'm going to put this stock in my "watch" portfolio and follow it.  It's corny but it's like being a hunter and waiting for just the right time when you can make the kill.  I'm going to see if there is an event of panic selling. If it drops to a good enough value, I'll jump on it.  By the way, for the first time they reported somewhat slower profit growth and the stock is already down 17% off its high.  I think it will continue to fall.  A 30% fall can be pretty compelling target point, if it gets there.

By the way, I did buy Chipotle (CMG) after the panic selling a while back, and it has started to rebound.  Buying stock after a panic selloff isn't the only strategy I use to buy stocks, but it is a great way to buy some of the "winners" out there.

So here's a question... would you buy Apple (AAPL) right now??  The stock is down around 30%.