Lululemon’s 40% Drop Looks Overdone – Here’s Why
Lululemon stock (NASDAQ: LULU) has shed 30% since reporting Q1 2025 earnings and now trades around $229, down 40% year-to-date, sharply lagging the S&P 500’s 2% gain. Yet the selloff looks more sentiment-driven than fundamentally justified. The company delivered solid results: revenue rose 7% to $2.37 billion, and EPS climbed 2% year-over-year to $2.60, narrowly beating expectations. Still, investors fixated on a modest 1% same-store sales gain and a lowered full-year outlook, partially weighed down by tariff concerns. Even so, Lululemon’s robust financial foundation suggests the market may be overreacting.
For a company often considered a premium brand, Lululemon stock now trades like a value play. At just 15x trailing earnings, it sits well below both its historical average and the broader market’s 27x. Its 21x price-to-free-cash-flow ratio is only slightly above the S&P 500 average — but for a company generating superior margins, growth, and returns on capital, that premium is justified. Compared to Nike, Lululemon looks especially appealing: it boasts a lower P/E and a stronger free cash flow profile. With a market cap of $27 billion and trailing free cash flow of $1.6 billion, LULU sports a cash flow yield of nearly 6% — a figure more typical of long-term compounders than volatile retail stocks.
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