Lululemon's (LULU) Red Flags, As Told By Herb Greenberg

Yesterday, outspoken Marketwatch columnist, Herb Greenberg, pontificated on Lululemon (Nasdaq: LULU). Herb Greenberg is known to write negative columns and this one does not disappoint. Greenberg raised several of red flags on Lululemon, including:

Red Flag 1=Early insider sales. When Lululemon went public, 78% of the proceeds when to insiders who took in $252 million. "Always a red flag when, right off the bat, venture investors are looking for ways to bail less than two years after they’ve bought into an unproven concept" he said.

Red Flag 2=Lululemon's share count! LULU IPO'd with tens of millions of more outstanding shares than the typical retail IPO. Herb said, "With 72.6 million shares, the simply doesn’t have the earnings leverage that young, growing companies often get. With its stock already trading at 90-times this year’s guidance, to genuinely justify its current valuation Lululemon would have to roll out substantially more stores the current plan and hope to generate huge, genuine upside earnings surprises – not the kind created by a lower tax rate, as happened in the past two quarters."

Red Flag 3=Lululemon's valuation!

Red flag 4=Competition! Herb said, "there are no barriers to entry to Lululemon’s business. Victoria’s Secret, among others, is getting into the act."

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