Is Lululemon Athletica Stock Poised for a Rally?

We think Lululemon Athletica (LULU) stock could be a good value buy. It is currently trading lower than average valuation, and has reasonable revenue growth and strong margins to go with its modest valuation.

Buying stocks with low valuations or trading well below their peaks but maintaining strong margins allows investors to capture mean reversion and valuation re-rating potential. The downside risk is potentially less because high-margin businesses can sustain earnings and recover faster when sentiment or market conditions improve

What Is Happening With LULU

LULU may be down -44% so far this year but is now 50% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago, and also trades at a P/E (Price-to-Earnings) ratio that is below S&P 500 median.

The stock may not reflect it yet, but here is what’s going well for the company. Lululemon’s proprietary fabrics and strong full-price sell-through support good profitability, despite recent tariff pressures and some gross profitability headwinds. While North American revenue faces pressure from cautious consumer spending and heightened competition, international expansion, particularly in China (up 46% in Q3), is robust, with new markets planned for 2026. The current discounted valuation reflects U.S. demand normalization and a recent Q4 guidance update below estimates.

LULU Has Strong Fundamentals

• Reasonable Revenue Growth: 8.8% LTM and 14.2% last 3 year average.
• Strong Margin: Nearly 22.4% 3-year average operating margin.
• No Major Margin Shock: Lululemon Athletica has avoided any large large margin collapse in the last 12 months.
• Modest Valuation: Despite encouraging fundamentals, LULU stock trades at a PE multiple of 14.5

Below is a quick comparison of LULU fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While LULU stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Lululemon fell nearly 92% during the Global Financial Crisis, the biggest hit we’ve seen. In 2018, it still dropped over 31%, and the Covid sell-off took it down about 47%. The inflation shock wasn’t much different, with a 46% pullback from peak to bottom. Even with Lululemon’s strong fundamentals, these numbers show that it’s not immune when the market turns south. Solid stocks can still face steep declines when fear sets in. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read LULU Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

For more details and our view, see Buy or Sell LULU Stock.

Stocks Like LULU

Not ready to act on LULU? Consider these alternatives:

1. Accenture (ACN)
2. PayPal (PYPL)
3. Constellation Brands (STZ)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Meaningfully below 1Y high
3. Current P/S < last few year average
4. Strong operating margin
5. P/E ratio below S&P 500 median

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 12.7% and 25.8% respectively
• Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
• Strategy consistent across market cycles

Portfolios Are The Smarter Way To Invest

Individual stocks are unpredictable. A smart portfolio keeps you invested, limits downside shocks, and provides upside exposure

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.