Could You Be Missing Lululemon Athletica Stock’s Upside?

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 -45% 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 premium brand and direct-to-consumer model sustain strong operating margins. International expansion, particularly robust growth in Asia, and gains in men’s apparel fuel revenue. However, North American comparable sales have moderated, with U.S. sales declining. This regional slowdown, coupled with higher tariffs impacting gross margins and conservative Q4 2025 guidance, likely explains the valuation discount.

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 14.3

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

Stock Picking Falls Short Against Multi Asset Portfolios

Individual stocks can soar or tank but multi asset exposure steadies the ride. A spread out portfolio captures upside while limiting the damage from any one market.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which 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