LULU is undervalued but avoided due to doubts about long-term business durability.

Its largest centers today are Lululemon, Molina Healthcare, and Mercado Libre. Boring. There is no story. Guys, the only tweets and the only stories about Lululemon say that this company is finished. They're all bad stories.

The first one is LULU. Lululemon represents 17% of Michael Perry's portfolio. So, we're taking a look here. Its market value is $11.63 billion. This is the company's actual price.

It is not the price of the stock symbol. This is simply the number of shares multiplied by the share price. But that's the totality of what it amounts to. The next thing I look at is the value of the organization.

This is the market value plus the company's debts minus cash. So, basically, the difference here of 2.6 billion, 2.3 billion is actually their debt. It seems like a large sum until you look at their cash flows.

Last year's cash flow was 1.35 billion. The five-year average is 1.09 billion. It is being sold at a price equivalent to eight and a half times its free cash flow. Guys, this is unbelievably cheap.

If you believe that this business can at least stabilize and continue to grow. It is still generally cheap, even if the work is gradually getting worse. Ultimately, guys, if I told you that you could buy the company with a market value of $100 million, you would recoup your money in exactly one month.

So, of course you will. At some point, an investment becomes good or bad depending on the price you pay. Guys, there's one metric I like here, and that's that their return on capital is high.

Their five-year average is 29%, and their one-year average is 20%. This depends on their operating income. It is the return that the company’s operating income generates on the money invested in the business.

It is clear that their operating income has been lower recently. They have seen a decline in revenues and profits, and this is the reason for this decline. Guys, they have high gross profit margins, as high as 56%.

Nike's profit margins are around 40%. Therefore, they have the ability to build high-quality products and demand a lot of money for them. The question is, do they need to back down from that a little?

Although their revenues are declining now, look at this. The revenue growth rate for three years is 8% annually, for five years it is 15%, and for ten years it is 17.6%. If you just look at that, you'll say, "Hey, this company is still growing."

But when you actually look at the revenues, although they still look like they are growing, you move on to the quarterly figures. Herein lies the problem. The second quarter of 2026 amounted to approximately 2.42 billion.

The second quarter of 2025 amounted to approximately 2.53 billion. So, it has seen a decline over the past year on a quarterly basis.

Well, guys, it's actually an arrow that achieves the eight pillars. It's the excitement of the Eight Pillars. Now, that doesn't mean you should go and buy it . This simply means that you need to understand that there is a problem with perception, or something is brewing in secret, or a combination of both.

They expect Lululemon to achieve $11 per share for the year ending February 2027 , with actual growth of 3%, 9% and 4% over the next three years. So, I assume they believe there is a change coming.

Because the other thing they have is revenue growth. Revenue growth of 2.7%, 5% and 8%. If this is indeed the case and the company is being sold for only 8.5 times its free cash flow , then this is a very profitable deal because it has returned to growth, according to analysts.

First, remember, guys, that the returns on capital are high. This is a sign of a high- quality business. It's not necessarily a business that will last a long time, but they did a good job of managing the cash that came into their business.

I wouldn't be surprised if Lululemon no longer existed, was acquired, or became a completely different company 10 years from now. I base these assumptions on the company's stability, a slight reorganization, a possible downturn, and then its return to growth again.

So, I'm not overly optimistic, and I don't think it will reach zero.

Profit margin and free cash flow . Although it achieved much higher rates , look at these profit margins here, they are 14% for five and ten years. I have only used 10%, 12% and 14% for both profit margin and free cash flow for the next ten years.

If you believe it is a better company as indicated by its return on capital, growth potential, and the type of market it operates in, you give it a higher price-to-earnings ratio.

If you don't think so, you're giving it a lower price-to-earnings ratio . I gave it a price-to- earnings ratio close to the market average. I entered 13, 17 and 21.

The stock price is currently 103. This is the reason behind Bury's interest. He has a low price, and I have a low price of 125, a high price of 315 , and an average price of 200.

This means, guys, if they can only grow by 4% annually, make a profit of only 12% on their revenue, and sell at a multiple of only 17 times earnings, you're still looking at a return of approximately 20% on your money.

For me, Lululemon doesn't fit my investment philosophy. Because of all the real estate and businesses I own, my goal is to buy companies that I am very confident will last for decades to come.

I cannot say that about Lulu. If someone told me now that " Lulu" would disappear in 20 years, I wouldn't be surprised. Therefore, I simply avoid it .