Is Lululemon a Buy?

You'd think that luxury-priced yoga gear wouldn't sell well in a recession, but lululemon athletica (Nasdaq: LULU) has nonetheless retained its poise and serenity. Still, investors might want to stick with the asanas and avoid the stock right now.

What's its secret?
At first glance, $100 yoga pants and $80 "Namaste Coverups" don't seem a natural fit with 10% unemployment. (Can't one do yoga in plain old inexpensive sweatpants?) With many retailers and consumer-goods companies worried about spooked consumers and "the new frugality," lululemon should rightly be running scared. But yoga-obsessed shoppers continue to snap up lululemon's pricy apparel, and investors have bid up its pricy shares.

Then again, why should macroeconomic difficulties hinder a retailer whose aura borrows heavily from the magical thinking described in the book The Secret? Last year, a Fast Company profile revealed that the company employs a highly effective but cultlike approach to selling.

Functional or fad?
That's a little weird, but it doesn't necessarily mean lululemon's not a buy. Let's go compare a few of its metrics against those of two roughly similar companies.

Actually, finding peers is easier said than done, since most yoga apparel suppliers are either private or owned by other companies. Instead, let's compare lululemon to Under Armour (NYSE: UA) and Nike (NYSE: NKE), both of which provide athletic apparel for active consumers.

*All data from Yahoo! Finance.

Judging by lululemon's PEG ratio, it's the cheapest of the bunch. However, while I think a PEG ratio is a good general forward-looking metric in many cases, it should be taken with a grain of salt, since analysts' forward growth assumptions aren't necessarily accurate. That's especially true for companies with extremely impressive growth thus far, like lululemon. Under Armour seems no better off on the metric, while Nike, with its proven brand strength and cheaper price, looks like a safer bet.

Years ago, Crocs (Nasdaq: CROX) seemed like it might keep up its heady growth forever -- until it couldn't. For about five years straight, top-line growth at Crocs increased at a torrid, unbelievable pace, as its shoes' popularity kept building (tempting many investors to believe that would always be the case). But when it started falling in 2008, the fad ended. Hard.

I can't help wondering whether fancy yoga apparel is a fad, too, even if lululemon has managed impressive growth for years on end. In most cases, investors would be well-advised to avoid stocks with fanatical followings. Although its devoted cult among consumers and investors hasn't hurt Apple over the years, the continued penny-stock status of darlings such as Heelys (Nasdaq: HLYS), Sirius XM (Nasdaq: SIRI), and Capstone Turbine (Nasdaq: CPST) show that such sentiments don't ensure success.

On a more qualitative level, the polyanna attitude exemplified by The Secret -- and incorporated into some of lululemon's vision and marketing materials -- could eventually suffer a backlash. Optimistic visualization is all well and good, but today's stark reality includes a lot of struggling and unemployed people. In such a climate, I have to wonder whether lululemon's brand risks seeming decadent, or even downright delusional.

Downward-facing dog?
Granted, there are things to like about lululemon. Beyond its steady top- and bottom-line growth, it has a solid bankroll: $174 million in cash and no debt. Still, lulemon's torrid share-price appreciation in the last year should give any investor pause.

Given analysts' high expectations and the stock's appreciations, I just don't think lululemon's a buy right now. (At least one Fool disagrees.) Even if the company doesn't completely fall off a cliff, like Crocs did several years ago, premium-priced stocks often take massive hits to their prices on minor disappointments. Investors who are interested in lululemon shares might want to wait for a cheaper opportunity to overpay. I'm simply unconvinced that this brand has true long-term staying power.

I'd like to hear from some lululemon loyalists in the comment boxes below, whether they're loyal to the stock or the brand. Am I missing something about lululemon? Share the love.