Out Fox The $treet

Back in September, the Opportunistic Levered (Arbitrage) portfolio attempted to hedge some gains with a short in lululemon Athletica (LULU). LULU had a big surge on earnings back then and seemed very stretched on a valuation basis. Well 3 months later and the stock is jumping again on the back of strong earnings. The stock jumped as much as 19% on the back of earning $.36 easily surpassing estimates of $.25. Same store sales were up a whooping 29%. LULU also forecast numbers that will easily surpass estimates in Q4 with a high teens percentage rise in same store sales. That is phenomenal growth. Maybe they are worth the high multiples after all. Going forward, based on a rough estimate from the guidance it seems the high end of estimates for 2011 (Jan 2012) might top out at $2. Based on the current $64 stock price, the forward PE is a lofty 32. Sure they are growing that fast this year, but will that growth be sustainable. Also for a retail operation they now have a Price to Sale...

Luckily the Cramer (Jim Cramer host of Mad Money on CNBC) pop is far more subdued then it was back a few years ago. Back then stocks could jump 5-10% just on his mention on the show. LULU jumped 1-2% after hours with the Cramer pick, but assuming the stock doesn't close above $44 tomorrow it might help support the theory of a short term top. Tomorrow's trading will be telling.

Shorted lululemon athletica (LULU) for the Opportunistic Portfolio mainly as a hedge for some short term over bought stocks. LULU also has a huge gap back to the $37 range so it provides a great opportunity for a stock likely to get whacked if the market sells off. The trade was made around $43.9 and any close above $44 would likely trigger covering this short. Again nothing wrong with the company except being highly priced now at 30x earnings and wanting some hedge for a portfolio still levered at 1.5x.