Lululemon: Sales Growth Is Key!

A few weeks back a good friend called and invited me out to dinner.  Never one to pass up on a night out, I quickly agreed.

My friend is a great guy, but he’s notoriously cheap!  He’s got entire drawers dedicated to coupons… and his normal choice of restaurants is sometimes questionable.  But this night was a very different story…

We went to Bourbon Steak, a high-class restaurant in Scottsdale…

Let me tell you, this isn’t a cheap place.  I know they don’t take coupons, and a basic steak will run you over $50!  Not to mention the appetizers, the sides, and of course, the wine… It all adds up quickly.

So, you can imagine my surprise when he offered to pick up the tab!

Why the sudden generosity?

I had to know.  He smiled really big and said he hit a big winner in the market.

Take a look at this chart of Lululemon (LULU)…

My friend started buying shares in September… he backed up the truck and filled it to the top!  He held on tight as the stock jumped in price… then jumped again.  When it was all said and done, my buddy was cashing out around the $90 level.  He pocketed over $18,000 on one trade!

I asked how he did it…

He uttered two words… Sales Growth.

I knew it was genius the moment I heard it.  My friend invested in LULU because of their amazing sales growth.  And you can use the same technique to identify other companies just like this one.

Here’s how it works…

Sales growth is simply looking at the quarter over quarter, or year over year, change in revenue numbers.  Every three months, each publicly traded company releases updated financial statements.  At the very top of the income statement is a single line… revenue.

Revenue is simply the sales a company made in the last quarter.

And of course, sales growth is simply the change in sales numbers from one time period to another.  By looking at the sales growth rate, it gives you a good idea of what the future holds for the company.  A strong growth rate is a very positive sign.

Consider this…

It doesn’t matter if the company is selling hamburgers, hair gel, or hula hoops.  There’s really only two ways to increase revenue… sell more product or increase prices.

Either one is a huge positive sign for a company… and eventually their stock.

Just take a look at LULU.

From 2005 to 2009, the company grew annual sales from $84 million to just under $453 million.  That’s a growth rate of over 439%! When my friend started buying the stock in 2010, the revenue was still rising sharply.

LULU’s products were flying off the shelves.

When 2010 was said and done, revenue had skyrocketed from $453 million to over $711 million – an astonishing 56.9% growth rate in a single year!

Undoubtedly, Lululemon’s skyrocketing stock price can be tied to how well the company was performing… and revenue growth is a great way to measure that performance.

You can find the next LULU yourself…

All you need to do is look for companies showing signs of big revenue growth.  Many of the online financial websites have tools to screen for sales growth.

Take a close look at the companies you find running the screens.

Visit their websites and look for new products and services.  Look for store expansion.  Most importantly, look for a strong upward trend in sales numbers.

You never know what you might find… By picking the right company, you’ll soon be buying your friends a steak dinner cooked just the way they like it!

Tags: Big Profit Signals for Stocks, Fundamental Investing Tips, Lululemon (LULU)

Category: Stocks