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Takeaway: We'd probably short LULU when the time and price is right despite how much we like the brand. There's a difference between a stock and brand

Lululemon Athletica (LULU) is one of the hottest brands out there. With the yoga craze in full swing, women are flocking to their nearest LULU store to plunk down a few hundred bucks on yoga pants, mats and accessories.

It’s important to be able to separate yourself from the hype. There is Lululemon the brand, the company and the stock. We think the brand is great, the company is good and the stock is below-average…at best. LULU has the ability to go from a $1.2 billion brand to a $3-4 billion brand in the next five years if it can continue to flawlessly execute its strategy. There’s tough competition in the space, namely from Nike (NKE) and Under Armour (UA).

Getting Emotional With LULU - lululogo

If you remove the emotions surrounding Lululemon the brand, you’re faced with the underlying numbers and maths. After examining the metrics surrounding LULU, you realize that the company needs to grow its online (.com) presence to eclipse that of existing store sales. There’s also the issue of implied new store productivity. Per Hedgeye Retail Sector Head Brian McGough:

“In looking at these numbers on the heels of implied new store productivity going from 175% in 2010, to 95%in 2011, and then down another 30% in 1Q12, we think that we’re going to need to see a massive ramp in comp in order to offset this trend.”

So coming full circle, one must separate themselves and their emotions from LULU. Once you do that, the company, despite its sexy yoga styling, looks like a short. At the very least, we are not the buyers, especially in advance of its next quarterly earnings report. In time, we could be short LULU and would do so when the fundamentals and quantitative setups fall into place.