Is Lululemon A Bargain At $230?
AUSTIN, TEXAS - JUNE 17: A Lululemon retail store is seen in the Barton Creek Square mall on June ... More 17, 2025 in Austin, Texas. Retail sales declined 0.9% in May according to a recent report conducted by the U.S. Commerce Department. (Photo by)
Lululemon stock (NASDAQ: LULU) has lost 30% since announcing Q1 2025 earnings and is currently priced at approximately $229, a 40% drop year-to-date, significantly trailing the S&P 500's 2% increase. However, this selloff appears to be driven more by sentiment rather than being fundamentally warranted. The company reported strong results: revenue increased by 7% to $2.37 billion, and EPS grew by 2% year-over-year to $2.60, slightly surpassing expectations. Nevertheless, investors were focused on a modest 1% same-store sales increase and a reduced full-year forecast, partly affected by tariff concerns. Even so, Lululemon's strong financial health indicates that the market may be overreacting.
For a brand often seen as premium, Lululemon stock is now behaving like a value stock. With a trailing earnings multiple of just 15x, it trades substantially below both its historical average and the broader market's 27x. Its 21x price-to-free-cash-flow ratio is only marginally above the S&P 500 average — but for a company delivering superior margins, growth, and returns on capital, that premium is warranted. In comparison to Nike, Lululemon appears particularly attractive: it features a lower P/E and a more robust free cash flow profile. With a market cap of $27 billion and trailing free cash flow of $1.6 billion, LULU achieves a cash flow yield of nearly 6% — a figure characteristic of long-term compounders rather than volatile retail stocks.
For investors looking for less volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and generated returns greater than 91% since its inception.
A Growth Engine with Elite Financials
Lululemon continues to be a growth powerhouse. Over the last three years, it has achieved a revenue CAGR of 19%, surpassing the S&P 500's 5.5% by more than three times. In the past 12 months alone, sales increased by 10% to nearly $11 billion, supported by a growing global presence and brand equity.
Regarding profitability, the company reported a 23.4% operating margin and an 18.8% operating cash flow margin over the past four quarters, both significantly above the market average. Its 16.8% net income margin further solidifies its reputation as one of the most operationally efficient players in the retail sector.
Financial Strength Few Can Compete With
Lululemon's balance sheet is in excellent condition. With a debt-to-equity ratio of only 6.0%—well below the S&P 500's 19.4%—and $1.3 billion in cash representing 17.8% of its total assets, the company enjoys low leverage and high liquidity. It is well-positioned to invest, expand, or endure downturns comfortably.
The Warning: This Journey Isn't Always Smooth
There's no denying it: Lululemon has experienced significant declines during market corrections. It dropped 46% during the 2022 downturn (compared to the S&P's 25%), plummeted 47% in the early 2020 Covid shock (versus 34%), and was severely impacted during the 2008 crash, falling 92% (in contrast to 57%). Investors must recognize that with LULU, solid fundamentals do not always protect against sharp sentiment fluctuations. Our dashboard How Low Can Stocks Go During A Market Crash captures how major stocks performed during and after the last six market crashes.
Invest with a Touch of Volatility
Lululemon ticks nearly every box—solid growth, noteworthy profitability, and a strong balance sheet. Its only significant downside? Vulnerability to market fluctuations. While Q1 revealed mixed results and cautious guidance, the long-term fundamentals remain firmly established.
Investing in a specific stock carries risks. You might also consider the Trefis Reinforced Value (RV) Portfolio, which has outpaced its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks made it a responsive way to maximize benefits during favorable market conditions while minimizing losses when markets decline, as outlined in RV Portfolio performance metrics.
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