After the rally in Lulu, with the stock trading into the close at 420.71 after posting earnings (gross profits up 72%!) and revenue beats (up 61%!) as well as raising guidance. Adjusted diluted EPS is expected to be from $7.3-7.5. When I did the original valuation before earnings, I estimated that Lulu could get to over $6 per share earnings. After the huge recent quarter we will use the same valuation method by multiplying the current P/E ratio but multiply it by the new EPS estimated from the guidance given to us by the company. This is a simple valuation method, but assuming that Lululemon stays at the same P/E ratio, we can expect Lulu to be trading at $521.47! However, I think that as Lulu gets rerated and priced accordingly, I think it is fair to say that there will be some doubt that Lulu can sustain its growth even after its magnificent quarter. I personally believe that Lulu has to become relatively cheaper, maybe trading at around a 62 P/E. This indicates Lulu trading at around $457.56 one year from now. Not bad, but after the monstrous move today, I believe we are looking at only around 8.75% upside from here. 8.75% is reasonable but combined with the fact that Lululemon does not offer a dividend, and I believe the S&P will be up more than 8.75% a year from now, it constitutes a HOLD rating. I would definitely hesitate a little if I had to buy it here.

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