The Missing Piece Behind My Lululemon Trade

Earlier this week, we covered why Lululemon could be a great turnaround play.

Today I will show you why simply buying the stock isn’t enough.

Because,

The biggest risk isn’t that my thesis is wrong.

It’s that I could be right… six quarters too early.

Because there are a few issues standing between today’s price and our target valuation:

Not to mention the underperformance in the value (red), and quality (dark blue) factors relative to the broader S&P 500 index.

Meaning,

While stocks like Lululemon, tied to the biggest catch-up potential in the value and quality factors, offers the most upside…

It also presents timing uncertainty, since neither you or I know when these factors will begin to perform again.

Nor do we know when these other issues will be resolved.

This is where most investors still choose to buy the stock, stick it in their pension, and hope for the best eventually.

Professionals don’t just ask: “Is the company cheap?”

They ask: “How much can I lose waiting for the market to agree with me?”

Today, we’ll cover the other side of the apparel industry.

Where one company still manages to grow its United States revenue by over 30%, compared to legacy names losing market share and bleeding revenue growth.

In other words,

We have to turn this idea into a value long with a momentum call option attached to it.

Because momentum fades, value trends.

And since we don’t know when that shift happens…

We must structure our exposure around this uncertainty.

So,

This is how hedge funds solve timing risk.
Here’s the missing piece to my Lululemon investment.