NEW YORK (TheStreet) -- Lululemon's (LULU) stock is popping on Monday morning after the Wall Street Journal reported founder Denis "Chip" Wilson was reaching out to Goldman Sachs (GS) for help in regaining the company.
At midday the stock was up 3.7% at $41.71.
Wilson has a long relationship with Goldman from the days the banker took Lululemon public in 2007. For now, the Goldman rating is a neutral and the company has not issued any public statement.
Lululemon's stock that has lost over a third of its value in the past 12 months.
"It's been a horrific year for the company," said David Nelson, Chief Strategist at Belpointe Asset Management. "Just about everything that could go wrong has. Sales are deteriorating and the company has suffered a blow regarding quality." Anecdotally, Nelson even observed that business at the Lululemon in his town used to be brisk on the weekends, but this past weekend it was empty.
Wilson hasn't endeared himself to his customer base. Women were offended by his comments that the quality issue was due to overweight women trying to wear the clothes. Equally offensive, Wilson said he named the company with "L's" because he was amused at hearing Asians trying to pronounce it. In an era of growing customer demand for social responsibility among clothing lines, he has advocated child labor and once said that smoking and birth control pills lead to high divorce rates.
Nelson believes the stock is just too expensive saying, "It isn't cheap trading at 22x this year's consensus. " Nelson also noted that last week a number of analysts threw in the towel and downgraded the stock with estimates coming down as well. "One potential suitor could be VF Corp. (VFC) , because they already have a presence in athletic wear," said Nelson.
Lululemon seems to have always had a premium price. Its IPO came in at $18 in 2007, way above the planned range of $10 to $12 a share. After the recession, the stock took off and climbed as high as the low $80s. However, since June of 2013 when CEO Christine Day resigned, the stock has plunged. The current CEO Laurent Potdevin brings the social responsibility cred from having been at TOMS Shoes. But his potbelly and lack of yoga experience make many question whether he is the right person to lead the company.
Former CEO Christine Day isn't looking back. Her new healthy food company Luvo is rumored to be preparing for an IPO and looking for a CFO that can take them public.
Meanwhile, Lululemon's net income has dropped, its earnings per share is declining and its return on equity is a disappointment. Yoga shoppers are turning to The Gap's (GPS) Athleta line and Victoria's Secret Pink brand Yoga pants as alternatives. Not to mention the numerous independent labels like Hardtail, Sweaty Betty and 15Love that are becoming yogi favorites.
All that leaves the stock looking pricey.
"The valuation hurdle is just a little too high for me to jump over," concludes Nelson.
-- Written by Debra Borchardt in New York.