Red Flag Alert: Is Lululemon More Like Under Armour or Chipotle?

Victim of its own success...

There’s a point with every growth company, at some point along the way, that things get screwed up and the stock breaks...

The big question for investors at that point is whether it’s a breather... or a break.

Enter Lululemon ($LULU), which has tumbled 22% since reporting earnings last month and nearly 30% since hitting its all-time high in December.

Lulu has been a topic of conversation lately with my friend, retail analyst Jeff Macke, the consummate Lulu bull. Jeff has been a fan for years. He was pounding the table on it when it first rolled out its men’s line, and put his money where his mouth was: Not only wearing the clothes, but as an investor for around eight years, buying the dips – even the big ones – along the way.

This time, he isn’t. Or as he puts it...

I'm not sure if it's a short yet. I'm not ready to go there. But I don't feel really compelled to buy it here. Normally my instinct when you say ‘down 30, 40 %’ is to start loading the boat on almost anything and ask questions later.

Not so much in a situation like this. I feel that, you know, I've got too big a position in basics. I like Levi's over Lulu. If you would have told me I'd say that a year ago, I would have thought you had gone insane. It's entirely possible I have, but that's where I am.

That’s where this gets interesting...

A Double Sell

It’s one thing when longtime bulls pause in their buying when stocks fall. It’s another when longtime bulls don’t just sell, but go short. (A double-sell!)