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.
Isaac Pino has no position in any stocks mentioned. Jeremy Bowman owns shares of Chipotle Mexican Grill and Nike. The Motley Fool recommends Chipotle Mexican Grill, Lululemon Athletica, and Nike. The Motley Fool owns shares of Chipotle Mexican Grill and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.