Lululemon Athletica Inc. (NASDAQ: LULU) has been in our list of Unusual Suspects each weekend now for three weeks running.  It isn’t because the earnings were great or because of continued hype and news flow (not directly, anyhow), but because this stock has spent 3 consecutive weeks as the #1 position each weekend in the IBD 100.  24/7 Wall St. generally takes a much more fundamental review of stocks than depending solely upon charts and tracking inflows of money.  The flip-side is that ignoring charts or not being aware of them is maybe even more silly than only using charts without considering anything else ever.  That being said, is Lululemon finally running out of gas.

For starters, monitoring the IBD 100 is easy and frequently interesting.  But when you see the same name holding a pattern for more than once it becomes a case of “How long can that last?” when considering that stocks do actually go down at some point.  The market cap is now over $3 billion.

As we noted over the weekend, Lululemon Athletica went out last week at $43.66, up from $41.69 the Friday before and versus $40.57 two Fridays ago when it was first as the #1 on the IBD 100…. Having one stock stay the #1 position on the IBD 100 for three weekend reports in a row is not a usual occurrence.  Yesterday the stock hit a high of $44.54 and the stock’s high so far today is $44.47 from early this morning.  Immediately after the open today the stock slid sharply before recovering and that really appears to be profit taking starting to come into play.

Then there is the valuation.  The economy is recovering.  How much depends on your geographic location.  But regardless of which side of the political aisle you are on, valuations do at some point have to come into play.  Thomson Reuters consensus estimates have risen for the next two years after its latest earnings and as the economy has improved.  The consensus for the years ending January-2011 and January-2012 are $1.06 and $1.37 in EPS and $581.88 million and $712.9 million in revenues. That means that Lulu trades at 41-times next year earnings (the 2010 period) and about 32-times 2012 earnings (the 2011 period).  With close to 30% growth in earnings it does deserve a premium.  The question is how much.  This is over 5-times forward revenues for this coming year and over 4-times revenues ahead.

Thomson Reuters lists a mean (average) target of $39.40 and an median target of $40.50, with a high target of $48.00.  The stock trades above the fair value of many analysts and has 10% upside to the top target even when you consider that estimates have been raised significantly.  The 52-week range is $11.07 to $44.54, and the real low in March-2009 was technically under $5.00.  Lulu also started the year out as a $30.00 stock and was well under $30 throughout much of January and February.

So do any of these individually or these issues combined mean that Lulu has to fall now?  Of course not.  But despite the notion that 52-week highs beget more 52-week highs, nothing goes up forever. Shares have even come off more since 1:30 when this writing started and the stock is now down at $43.43.  If it does not go out another $1.00 or more above the $43.66 level of last Friday, IBD won’t have it as the #1 stock.  Regardless of what they have, it seems that some profit taking is at least starting to be seen.

Jon C. Ogg

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