LULU faces near-term downside from tax-loss selling and new CEO accounting reset; attractive for future PE exit but wait months to buy.

With Lululemon, which until last week was Michael Bury's number one , then in one day he sold everything and turned to Dick's as an alternative, and he sold everything as a strategy to take tax losses.

So, his position in Lululemon started at 200. And now he has sold everything. This is a 50% loss in that position, which should offset some of the gains he made in his portfolio this year, and thus allow him to pay less tax.

There is a 30-day waiting period, so I think in January or so, he says he will return to Lululemon. But this also tells us one thing, which is that it is likely that nothing will happen to Lululemon in the next 45 days to two months .

Because if we look at Lululemon, sales have declined, and comparable sales have declined by 9 to 10 %, but the main factor for investors is that the company is still positive. They expect a 10-11% drop in revenue for the third quarter, and they will have a new CEO, but they still expect to remain profitable.

Profitability allows for share buybacks, and buybacks and cash flows attract the interest of private equity firms that may wish to acquire them. Now we have a new CEO, and it is again unlikely that she will prepare the company for sale in the next few months.

It's likely they'll try to shape things so that we can get an exit in 2027 or something like a private equity takeover, and that's something I think Bury is betting on.

Then there's the story of the "budget cleanup" in finance, where a new CEO comes in, examines the situation, and on the first conference call, you might make everything look very bad and then say, "This is what I started with."

"Any subsequent improvement is entirely my own doing." Therefore, this is something that could push the stock down even further.

When it comes to the stock, it may fall further, but the question now is how far. The market value is now 10 billion. Free cash flow remains at 1.2 billion. It's still positive.

The price-to-earnings ratio is seven, and the stock was at 500 just two and a half years ago. This is crazy.

Perhaps with Lululemon, it should be acquired for 12-15 billion. There are likely to be some low offers coming. Perhaps they should disclose that. Who knows?

So, when it comes to fashion, I'm ruling out these stocks even though Lululemon is interesting. Maybe next month I'll see things differently. But, also considering what Barry has done, we may have to wait another 3 months and then wait until next year.

There may be more sales to offset tax losses by others, which will push the stock down until the end of December.