UA - Lululemon's Risk-Reward Looks Good Even Considering The Worst Case
2024-05-30 17:46:43 ET
Summary
- Lululemon's sell-off this year suggests the apparel company is either heading for a Covid hangover or a total fad.
- Whether that is premature, we can look at past cautionary tales to spell out what the worst-case scenario might be.
- Compare that to the upside if the reports of LULU's slowdown are premature, and the risk/reward looks attractive.
"Prediction is hard, especially about the future." That's supposedly either a Yogi Berra quote or a Niels Bohr quote. Whatever the case, it's a true statement.
As equity investors, we have to accept that stocks are forward-looking. How can we invest without trying to predict the future? I try to get around that a few ways, and one is by tweaking the goal. When looking at a stock, rather than predicting what will happen, I try to imagine the worst-case outcome and then what the best-case outcome might be. From there, the investment decision is about how likely one or the other type of outcome is, and how good the reward is versus the risk....
Lululemon's Risk-Reward Looks Good, Even Considering The Worst Case