Canyon Edge - $CRWD & $LULU Earnings, Factors

Welcome to the 2nd edition of Canyon Edge - in this edition we talk about Crowdstrike and Lululemon’s upcoming earnings reports, take a look at how Lululemon trades around earnings, and what a factor is and how investors utilize them to trade.

Earnings Intelligence

$CRWD | Tuesday, June 3 - Q1 2026 Earnings

Sell-side Consensus Estimates (YoY):

· Revenue: 1.105B (+20%)

· EBIT: 177.88M (-10.50%)

· EPS (GAAP): 0.66 (-29.04%)

Sentiment Check:

12 strong buys / 27 buys / 7 holds / 0 sells / 1 strong sell

Street sentiment is strongly bullish, consistent with recent trends, but a rare shift came from DZ Bank, which moved from a Strong Buy to a Strong Sell in late May, the sharpest downgrade on the street, accompanied by a $370 price target (roughly 20% below current levels). Momentum has been strong in 2025 overall (+36% YTD), though the stock is pulling back slightly ahead of earnings. Investors are increasingly cautious as growth slows and operating margins come under pressure, expected to drop to 20% by FY2026, below the company’s 28–32% target. But CrowdStrike still remains one of the top cybersecurity plays, with strong long-term demand tied to AI and cloud adoption.

What matters:

What analysts are looking for is revenue growth since CrowdStrike is trading at a 22.39x forward P/S compared to the industry average of 14.24x, CrowdStrike is priced for perfection and any shortfall in sales may lead to revisions on valuation.

Another segment that analysts are looking for is operating margins. Management’s long-term goal of 28%-32%, but guidance suggests a decline to 20%. So, any unexpected declines in operating margins will be a disappointment for investors.

Desk Color:

Morgan Stanley: “CrowdStrike remains one of the 'Best Athletes' in software despite the stock's premium valuation (18x 2026 EV/Sales vs. 11x large cap software average)”

$LULU | Thursday, June 5 - Q1 2025 Earnings

Sell-side Consensus Estimates (YoY):

• Revenue: $2.35B (+6.8%)

• Net Income: $316M (-1.68%)

• EPS (Adjusted): $2.60 (+2.33%)

Sentiment Check:

3 Strong Buys / 16 Buys / 14 Holds / 2 Sell / 1 Strong Sell

This quarter, investors are keeping a close eye on a few key things for Lululemon. First, demand in North America is a big question mark. Sales basically flatlined last quarter, which raised some eyebrows, and while early signs point to slight improvement, it’s not a full rebound yet. Second, margins are expected to improve now that freight costs are coming down and U.S.–China trade tensions have cooled. The big question is whether that upside will boost earnings or get funneled back into marketing and product development. Third, there’s interest in how the new men’s and women’s pants lines are performing. Are they bringing more people into stores, or are sales still stuck? Fourth, international growth remains a strong point, especially in China, Japan, and Europe, where sales are likely to outpace North America again. And finally, all eyes are on full-year guidance. What management says about margins and the overall outlook for the year will matter a lot. Investors want to hear confidence, but not too much, given how uncertain the consumer landscape still is.

What Matters:

6 words: North American same-store-sales growth

Desk Color:

Diamond Hill: “We believe the company is operating well and is positioned to improve US sales performance while continuing to grow international sales”

Morgan Stanley: “We anticipate sales-driven 1Q25 EPS upside”

Invest like a PM - What Truly Matters Heading Into Q1 Earnings for Lululemon ($LULU)

The Setup:

Lululemon reports Q1 FY2025 earnings on Thursday, June 5, after market close. The Street expects approximately $2.35 billion in revenue and EPS of approximately $2.58 — a modest beat by pre-historical standards. But this isn't about a regular beat or miss; it's more.

This quarter is all about a macro reset, a margin credibility check, under the cloud of weak Q4 guidance and sequential pressure in core categories, along with an indicator for demand in North America.

Investors are also closely watching alternative data on how sales are doing for Alo and Vuori.

We’ll avoid writing too much on the story since we already have a pitch out on Lulu;

Think Like a PM: Don’t Focus on the EPS, Look at Margins

Lululemon is one of several apparel names benefiting from the recent tariff truce between the U.S. and China, which halts the implementation of new duties and leaves existing tariffs untouched—for now. While management cited tariff-related headwinds in its FY2025 guidance, this pause in escalation removes near-term downside risk to margins and supply chain costs.

Investors will want to know if Lulu will use the money saved from the tariff truce to lower prices, boost marketing, or grow the business — or if it will keep the savings and boost profits. If profit margins don’t improve this quarter, even with lower costs, it could show that the company is struggling to control expenses or make the most of its growth.

International: China Shines, but others stall.

While China sales remain strong (+26% YoY last quarter), early traction in Europe and Japan remains mixed, per management. The big question now is whether strong international growth can make up for slower sales in North America — or if Lululemon is just using global expansion to distract us from the problems they are facing at home.

Positioning - Favorable but Losing its Flair

Lulu is still a favorite among long-term growth investors, but some big funds have started to cut back since March. If this quarter’s results disappoint again — especially on profit margins or sales growth — investors might start shifting money into other brands with stronger stories, like Nike, On AG, or even more stable retailers like Costco.

Analyst Mode

What Actually Moves a Stock? The Factor Lens

Factors are measurable characteristics that explain why stocks move, acting like the building blocks of returns in the eyes of pod shops. These multi-manager hedge funds use factors to analyze performance, manage risk, and construct market-neutral portfolios that isolate alpha (stock-specific gains) while minimizing exposure to broad market or sector trends. Here’s how the core factors momentum, value, quality, growth, and volatility shape stock price reactions, especially around earnings, and how pod shops exploit them.

1. Momentum

Momentum captures the tendency of stocks with strong recent performance (typically 3-12 month returns) to keep trending. It’s driven by behavioral biases like investor herding or slow reactions to new information. Around earnings, momentum can amplify moves if results reinforce the trend. For example, a stock on a tear might surge further on a beat, but a miss like Netflix’s 2022 subscriber loss (200,000 subscribers lost vs. 2.5 million expected) can crush momentum, especially if longs are crowded.

Pod shops track momentum via price trends, technical signals (like breakouts), or alternative data (social media sentiment, options flow). They might go long a high-momentum stock pre-earnings if proprietary data (e.g., app downloads) suggests a beat or short it if momentum looks overstretched. Risk models cap momentum exposure to avoid crashes when trends reverse.

2. Value

Value identifies stocks trading cheap relative to fundamentals like earnings (P/E), book value (P/B), or cash flow yield. A low-valuation stock can rally on strong earnings if the market re-rates it, but an expensive stock faces a high bar and risks a sell-off on any weakness. Pod shops screen for value using forward P/E or EV/EBITDA, layering in data like channel checks to predict earnings surprises. They might buy an undervalued stock expecting a catalyst or short an overpriced one if fundamentals look shaky. Value is often paired with quality to dodge traps (cheap but flawed companies).

3. Quality

Quality focuses on firms with strong fundamentals: high margins, return on equity, stable cash flows, or low debt. These stocks tend to hold up in volatile markets or post-earnings if they confirm resilience. A quality company beating estimates can drive outsized gains, while weak quality (e.g., high debt, inconsistent earnings) can exacerbate sell-offs. Pod shops prioritize quality metrics like ROIC or gross margin stability, using data like supply chain checks to gauge operational health. They often overweight quality in long-short portfolios for downside protection.

4. Growth

Growth measures revenue or earnings expansion relative to peers. Stocks with high growth potential can soar on earnings beats that validate their trajectory, but disappointments (like Netflix’s 2022 subscriber miss) can trigger brutal drops, especially for high-growth names with lofty valuations. Pod shops model growth using forecasts and alternative data (e.g., web traffic, customer acquisition trends). They might go long a growth stock if data signals upside or short if growth is slowing and the market hasn’t priced it in.

5. Volatility

Volatility tracks a stock’s price swings (e.g., beta or average true range). Pod shops prefer low-volatility names for precise risk sizing, as high volatility can blow through stop-losses. Around earnings, high-volatility stocks can see exaggerated moves, offering opportunity but also risk. Funds monitor options implied volatility to gauge expected moves and position accordingly, often using straddles or strangles to play earnings uncertainty. They also adjust position sizes to balance volatility exposure across the portfolio.

Pod Shop Playbook

Pod shops combine these factors to build portfolios that isolate alpha while neutralizing market risk. Before earnings, they analyze positioning (e.g., short interest, options skew) to assess crowding. If a stock has strong momentum and growth but is overvalued, they might short into a report, expecting a miss to spark a reversal. Conversely, a high-quality, undervalued name with modest momentum could be a long if data suggests a beat. They lean on proprietary signals—credit card data, web scraping, foot traffic—to refine factor bets. For example, Netflix’s 2022 drop was likely anticipated by funds using app download or churn data, shorting into the crowded long setup.

The goal is to exploit surprises relative to what’s priced in. A stock beating consensus EPS but missing on a key metric (e.g., subscriber growth for a tech firm) can tank if the market overemphasized that metric. Pod shops use factor models to quantify exposures, ensuring they’re not inadvertently betting on macro trends, and focus on idiosyncratic drivers for alpha.

Factors are a piece of the puzzle for risk models, if you want to learn more I suggest watching this video;

Thanks for reading the 2nd edition of the Canyon Edge, as always - subscribe for more and all inquiries should be directed to;

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