How To Earn 10% Yield While Waiting to Buy LULU 30% Cheaper

At about $210.67 a share, Lululemon Athletica (LULU) is trading about 50% below its 52W high.

Do you think LULU stock is a good long-term bet at current levels? What about at a 30% discount at about $150 per share? If you think that is a steal, and have some cash ready to go, here is a trade.

10% annualized yield at 30% margin of safety, by selling Put Options.

• Sell a long-dated Put option expiring 12/18/2026, with a strike price of $150
• Collect roughly $940 in premium per contract (each contract represents 100 shares)
• That’s about 6.5% annualized yield on the $15,000 you’re setting aside for the possibility of buying the stock
• This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 10.5%
• And you give yourself a chance to buy LULU stock at deep discounted price of $150

However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.

Possible Trade Outcomes: You Win Either Way

But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.

First, you want fundamentals to check out. For details, see Buy or Sell LULU Stock or check Lululemon Athletica Investment Highlights

Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.

Why Hold LULU Stock Long-Term

Lululemon possesses a powerful, community-driven brand that commands premium pricing and fosters exceptional loyalty. This qualitative strength is paired with a strong secular tailwind from the global shift towards health, wellness, and athleisure, with the market projected to grow robustly. The company’s strong balance sheet and consistent free cash flow generation provide resilience. If assigned the stock, we would be comfortable owning a market-leading company with a durable competitive advantage in a growing industry.

Competitive Advantage

We classify LULU’s economic moat as WIDE, with the primary source being Brand

• Cult-like brand loyalty driven by a community-centric marketing strategy, including in-store events, fitness classes, and a brand ambassador program, leading to high customer retention rates of 76% to 89%.
• Despite recent consumer pushback and increased promotions, the company has a history of premium pricing with gross margins consistently above industry averages (around 56-58%), indicating strong brand power.
• Historically outpaced competitors like Nike and Adidas in revenue growth and profitability, gaining significant market share over the last decade.

See Lululemon Athletica Full Analysis.

Industry Tailwind

The industry tailwind is STRONG, with CAGR projection of 9.1% (Multiple Sources)

Secular Trend: Shift to Health & Wellness Lifestyle
Key Risks: Intensifying competition from both established players and emerging DTC brands, and potential for consumer discretionary spending slowdown.

Financial Guardrails

Cash Generation: Positive Free Cash Flow
Balance Sheet: Strong, debt-free balance sheet with over $1.0 billion in cash and cash equivalents, indicating a very low bankruptcy risk.

Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.

Stock Picking Falls Short Against Multi Asset Portfolios

Individual picks are volatile but diversified assets offset each other. A multi asset portfolio helps you stay the course capture upside and reduce downside.

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