The typical criticism: this is a loser, over-priced company, with a product that's made of fibers which are getting more expensive, that women have already bought too much of and you know what? It costs too much. Its future is not as bright as its past.
Now, the problem with this kind of argument is you could've made it when LULU was at 30, and at 40, or at 50, or at 60, or at 70, or at 80! At no time was that set of criticisms invalid. But obviously they have not been enough to stop the stock from going higher. It's not that the criticisms were wrong-- it's that they didn't matter.
These very "Heard on the Street"-slash-Wall Street Journal arguments totally misjudge why a stock moves. I want you to think of it like this: stocks are an asset class, and within that asset class are certain phyla, or orders, or genuses, and they're species of stock, they're not nematodes or [indecipherable].
Lululemon belongs to a particular family. It's one of the highest growth stocks. Now, there are mutual funds that seek these highest growth stocks all the time. And since these funds have been very right for awhile, people have been throwing their money at them. And when that money comes in, the fund managers go out and buy more Lululemon. It's that simple.
As long as LULU hits their growth benchmarks, as long as these funds can model even a pie-in-the-sky earnings estimate in the years ahead here, let's say 2014, and that estimate doesn't carry a price-to-earnings multiple that's more than twice the company's growth rate, these funds are going to keep... buying... Lululemon. The only way LULU goes down is if it fails to hit those benchmarks. And then what will happen is you will see a wholesale sell off, they will sell, sell, sell. They will dump it from whatever level it happens to be trading at right from that moment.
The only way to short a stock like LULU without getting your head taken off is by waiting until that moment comes and the growth stumbles. Until then, you bet against this kind of stock, you're doing so at your own peril.
~Jim Cramer, CNBC's Mad Money with Jim Cramer, February 17, 2011