3 Reasons to Sell Lululemon

In the video below, Fool analysts Jeremy Bowman and Isaac Pino take a look at some potential red flags for lululemon athletica (NASDAQ: LULU  ) .

The clothing retailer is growing fast, but investors must also consider the bearish arguments for the company, Jeremy says.

The first concern with Lululemon is the competitive threat to the company from larger, more established clothing retailers. Gap, for instance, has rolled out its own athletic brand to compete for women customers. Nike and Nordstrom have also introduced brands to target the same demographic.

The battle will play out over years, Jeremy says, and it could affect Lululemon's margins over the next few years.

The stock is also pricey, selling at a multiple of between 45 and 50. That price has 30% growth factored in for the next few years, Jeremy says. That could present problems if growth slows.

The last potential red flag is international sales. The company has begun to expand into markets overseas, but whether its success here will translate in those markets is unknown.

Lululemon has been a pick of Motley Fool superinvestor David Gardner, and has risen more than 87% since he recommended it in Rule Breakers in December 2010. David specializes in identifying game-changing companies like this long before others are keen to their disruptive potential and helping like-minded investors profit while Wall Street catches up. Learn more about how he picks his winners with a free online tour of his flagship service: Supernova. Inside you’ll discover the science behind his market-trouncing returns. Just click here now for instant access.


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