GROWTH STORY: LULUEMON – CANADIAN YOGA?

Lululemon Athletica (LULU) was mentioned twice by Jim Cramer on Mad Money, once last night on his show and again this morning on TheStreet TV. Well this got me thinking what the heck is this company. Yahoo Finance revealed nothing but I dug deeper and found that Lululemon just IPO last week on the 27th of July at an IPO price of $18 but now about $32 giving it a market cap of 2.8 billion on who knows how much in sales but it better be at least close to one billion in annual sales to justify the price right now.

Goldman, Sachs & Co. and Merrill Lynch & Co. served as joint book runners with Credit Suisse, UBS Investment Bank, William Blair & Company, CIBC World Markets, Wachovia Securities and Thomas Weisel Partners LLC serving as co-managers for the IPO. We should expect some upgrades from all of them soon as usual.

Can the yoga fad rise to the top? Well Cramer compared this stock to Under Armour (UA) and Crocs Inc (CROX) as a type of growth stock that is underestimated but has a strong balance sheet but just high on valuation which will bring out the shorts which keep both Under Armour and Crox sky high in valuation. Cramer insisted that you may have missed the initial ride but you should definitely not doubt this stock if it gets a large short position. I don’t know about the financials yet but soon we’ll see if it grows or not. Apparently it’s global and has over 1,700 employees.

In Latin America, yoga inspired sports wear is actually very popular and there is a niche in the world as a good women’s brand that dominates this category because Nike and Under Armour are still very masculine. Lululemon could be the niche brand of the decade. We’ll see.

About Lululemon Althletica

Lululemon is a yoga-inspired athletic apparel company that creates components for people to live longer, healthier and more fun lives. By producing products that keep people active and stress free, lululemon believes that the world will be a better place. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback. lululemon athletica was founded in Vancouver, British Columbia in 1998 by Chip Wilson, founder of Westbeach Sports, a skate/surf/snowboard clothing company. lululemon athletica is extending into new communities across North America and throughout the world. For more information, visit www.lululemon.com.

MASTERCARD: A BUY ON WEAKNESS?

Mastercard (MA), major credit card transaction processor dropped to a low of $139 today before recovering to $150 on excellent earnings.  No only did they beat the street but suggest that the consumer is still doing pretty dandy.  It has a major advantage over issuers such as Discover and American Express (AXP) because they are processors not holders of the debt which turn out to be the banks that cobranded the Mastercard brand.  Another big advantage is that Mastercard has 50% of it’s revenue coming from outside the US so they benefit from global growth and the upside on the currency play.

There are possible problems such as the possibility of a global slow down but that goes with most companies.  The possibility of slower domestic growth is another one however the global portion should more than make up for it.   Jim Cramer on CNBC says the sell off was “overdone” but the stock closed from it’s lows of the day.

From the chart, you can see that Mastercard technically has support at about $140 which it hit today and bounced right back up.  If it breaks that the next support is at $118 or so but it did bounce today and it may see the low $140s or high $130s before bouncing back up.  It has a 16% short ratio which may build with the stock moving down and any catalyst may move it.  The company has about $2 billion in cash at a $20 billion valuation – with a forward PE of 25 and a growth rate of 15%-20%, Mastercard still seems like a buy with the global transition from cash to credit payments.

VM Ware – EMC’s Explosive IPO Jackpot

Fast Money’s Guy Adami and Mad Money’s Jim Cramer has been raving about EMC’s growth prospects for the last few month pushing the stock from $12 to just about $18.60 as we speak.  (I own EMC October Calls).  They both claim that the valuation of VM Ware which they will hold almost 90% interest when it’s finally done is going to push their stock much higher than it is.

VM Ware’s IPO date has been set at August 18th.   The initial public offering of 33 million shares in the virtualization software maker will come down Aug. 14 at a range of $23 to $25 each, according to the company but Intel and Cisco had purchases interest in VM Ware before IPO expecting greater upside.  Cisco invested $150 Million for about 1.6% of VMware giving a valuation of $9.4 Billion wheras Intel which invested $218.5 million a few weeks back for a valuation of $8.8 billion.  Under these circumstances we should expect VM Ware to be worth close to $10 billion.

Let’s do the numbers.  They are selling 33 million shares at the top end of $25 to raise $825 million which is about 6% of all outstanding interest (100% – 90% (EMC) – 1.6% (Cisco) – 2.5% (Intel) = 6%).  This comes out to be a valuation of $13.75 billion which could rise if the IPO price goes above the high end of $25 which almost every analyst on earth expects.

So if EMC as of today’s close is worth about $38 billion minus a $12.4 billion stake in VM Ware is worth $24 billion by itself minus $1 billion in cash = $23 billion.  It’s expect to have $13 billion in revenue minus about up to $2 billion for VM Ware and that’s at least $11 billion in revenue with a good profit margin.  So trading at only 2 times cash with a 15% growth rate would suggest that EMC is undervalued.

Cramer put his targets at $30 and up.  Not only is he pitching this, he has owns it for his charitable trust as of last week!  We’ll see if Cramer is right.

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