"Lululemon's Big Squeeze"
By Jim Cramer
RealMoney Columnist
3/29/2011 11:42 AM EDT
"Lululemon Athletica (LULU - commentary - Trade Now) splits and it flies! Egads. Splits don't mean anything. It's all nonsense. Short the stock!
Except it is already shorted, and now it has the audacity to break out! Now it is attracting a whole new set of chartist buyers who are desperate for stocks that have been able to take out their all-time highs, to break free from the head-and-shoulders or cup-and-handle or Hindenburg or black cross of whatever.
One of the problems here is my show. Last week I compared Nike (NKE - commentary - Trade Now) and Lululemon and explained why Lululemon was good and Nike was not so good.
Central to the story was how Lululemon isn't well liked. Many firms have it as a hold or a sell because it is "overvalued" But when a stock is overvalued, it often tends to get more overvalued. What's the difference between a stock selling at 43x earnings vs., say, 46x earnings, if the earnings are growing at 25%? These growth hounds can easily justify paying 50x earnings, twice the growth rate, and I am sure some will pay 55x earnings because they think the growth rate is accelerating. Plus, we are so early in the regional-to-national story -- or perhaps international -- that it may be able to grow for years.
I said that all of this is obvious to any close observer of the Lululemon situation, and the Canadian papers cited me as moving it. I am sure that there were a bunch of hedge-fund managers who recognized that I was just going over the story as a contrast to Nike, and they put the stock out immediately.
And now we get the split!
This is quintessential bull market behavior; very hard to fight. Very hard to stomach. And very in charge in this tape. "
(in
www.realmoney.com)