Lululemon's dramatic fall from $420 to $160 stock price presents an attractive buying opportunity.
Lululemon Athletica Inc., the popular activewear brand, is facing a more competitive landscape as new entrants join the industry. Despite this, the company's balance sheet remains solid, thanks in part to its profitability and strategic moves like buying back about $1.77 billion worth of stock over the past year.
The stock price of Lululemon (NASDAQ:LULU) has seen a significant drop from approximately $420 per share in January to around $160 per share today. However, the company's PE ratio of about 12 times is noteworthy, as it is a level only seen during the Great Financial Crisis. This could suggest that Lululemon is trading like a value stock now and could see PE multiple expansion if it can beat its forward earnings estimates.
International sales for Lululemon are showing strong growth, with China being the second-largest market and revenues growing by 25% in the latest quarter. This growth outside the U.S. market is a positive sign, indicating that the brand's appeal extends beyond its home market.
However, challenges remain. The University of Michigan's Consumer Sentiment Index has been declining for the past few months, and tariff uncertainty and a weakening jobs market could impact consumer sentiment and retail sales for companies like Lululemon. The impact of tariffs was evident in the Q2 2026 results, which caused the stock to drop due to weakness in the United States and reduced full-year revenue and earnings guidance.
Competition is another significant challenge. Nike, Inc. (NKE) and Athleta, owned by The Gap, Inc., are major competitors. Smaller companies like Vuori and Alo Yoga, which focus on higher-end price points, are also considered bigger threats.
On a positive note, if the Supreme Court deems tariffs to be illegal, it could positively impact Lululemon's sales and stock price. Additionally, the Federal Reserve is expected to cut interest rates, possibly more than once between now and the end of the year, which could increase discretionary spending on items like clothing.
Looking ahead, the next quarterly earnings report for Lululemon is expected around late 2025 or early 2026. The Q2 2026 report showed a 6.5% revenue increase to $2.53 billion overall, but a 1-2% revenue decline in the U.S. market. The growth in international markets, especially China, indicates stronger growth outside the U.S.
In conclusion, while Lululemon faces challenges, its solid balance sheet, international growth, and potential for PE multiple expansion offer reasons for optimism. The company's ability to navigate the current industry landscape and address its challenges will be crucial for its future success.
