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....
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Lululemon's Risk-Reward Looks Good, Even Considering The Worst Case