To The Moon

$Lululemon Athletica(LULU)$ was new added into $S&P 500(.SPX)$ and saw a significant 10% surge. Also included in the index was $Hubbell(HUBB)$ replacing the previously acquired $Activision Blizzard(ATVI)$ by $Microsoft(MSFT)$ and the women's health company $Organon & Co(OGN)$

Investors familiar with LULU's trading may know that it is a highly volatile stock, with earnings and company events often leading to fluctuations of over 10%. Options traders particularly like using it for earnings bets. LULU is also known as one of the "most suitable subjects for straddle options."

Therefore, while HUBB's increase was only 3%, LULU managed to achieve 10%.

For institutional investors, LULU still falls into the category of "growth stocks," so its valuation remains relatively generous, with a TTM P/E ratio exceeding 50 times. However, with the base effect increasing, it has dropped from over 80% in 2021 to around 30%, and the latest growth rate in the last quarter (July 2023) is 18%. It is expected to hover around the "mid-teens" for the next few quarters, and a decline in growth rate is an inevitable fact.

So, calling it overvalued is not unreasonable. However, history has shown that some companies, even when considered overvalued by various metrics, still manage to create new highs.

LULU's significant growth comes from the Greater China , which is also the primary driver of its expansion. The latest quarterly report shows that the number of LULU stores in China has increased by 30% compared to the same period last year, while the North American region has only seen low single-digit growth.

Now, with the arrival of quantitative tightening, individual stock risk premiums have increased, making more conservative investors feel that it is even more overvalued. Currently, LULU is well above its 200-day moving average, the RSI is also in an expanding range, and overall sentiment is very optimistic, but it also faces pressure for a pullback.

Although the company has a strong brand, pricing power, transparent management, high capital return, and sustained long-term growth, whether its substantial competitive advantage and moat are wide enough still determine the sustainability of its growth.

For instance, in the Chinese market, state-owned brands like $ANTA SPORTS(02020)$ and $LI NING(02331)$ might have the ability to gain market share, while established brands like $Nike (NKE)$ and $Adidas (ADDYY)$ are also taking more measures to expand in the yoga and women's market. Therefore, LULU's stock price is likely to experience more volatility in the future, providing investors with more trading opportunities.