Will Chip Wilson Take Over Lululemon or 'Just' Lead It to Dominance?

NEW YORK (TheStreet) -- When I profiled sportswear maker Lululemon (LULU) earlier this month in "Lululemon Is Oversold and a Value Buy Ahead of Earnings," I focused on the value the shares offered and the potential for a massive short squeeze. Lululemon's founder and board member Dennis "Chip" Wilson appears to agree, and reportedly is working with investment bank Goldman Sachs (GS) to increase his exposure and control over the company.

Lululemon managed to beat estimates by 2 cents and reported 34 cents per share. As of noon Monday, shares were trading at $41.66, up well over 3% for the day.

But is Lululemon's performance enough to satisfy shareholders?

Investors zeroed in on the margin compression and inventory levels. Wall Street is known for its incredibly short amount of patience, and if you're not careful, you may find yourself selling at the worst possible time.

In the short-term, emotion -- not logic -- is what drives a stock price higher or lower. Fear of continued losses and a natural tendency for shareholders to take profits too soon (or exit at breakeven) can send shares well below their true underlying value. The same happens when stocks are inside a bull trend, although for different reasons.

In other words, once a stock is in a bear trend, it almost always overshoots to the downside and overshoots within a bull trend. It was ridiculous that Lululemon's shares opened below $38 on June 12. We know this because once the dust settled and emotion somewhat abated, the shares quickly rebounded, increasing almost every day since.

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