“Be fearful when others are greedy, and greedy when others are fearful” is one of Warren Buffett’s most enduring lessons—and it feels particularly apt for Lululemon Athletica (LULU) today. The luxury athleisure brand has fallen out of favor on Wall Street, weighed down by guidance cuts tied to tariffs, softer consumer demand, inventory missteps, and intensifying competition.
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Yet despite these headwinds, Lululemon remains a growth company with profitability strong enough to weather near-term challenges. Its durable moat and ability to return value to shareholders hardly justify valuations that now sit near levels last seen during the 2020 pandemic lows.
With such a stark disconnect between the company’s resilient fundamentals and its depressed stock price, I view LULU as a compelling long-term Buy. That said, near-term momentum will need to stabilize to prevent further downside before the market begins to reward loyalty in this franchise.
LULU’s Perfect Storm Has Arrived
The situation with Lululemon stock is mixed. On the downside, momentum is poor, analysts have been revising expectations downward, and growth is slowing. On the bright side, valuation looks attractive, and profitability remains robust.
The stock has dropped nearly 39% over the past three months and a total of 48% in 2025, compared with a 10% return for the S&P 500 (SPX). This heightened pessimism is reflected in more conservative bottom-line growth expectations. Two quarters ago, the market expected Lululemon to grow EPS at a 12.2% CAGR over the next three years; today, the expectation is just 9.7%—well below the 23.3% CAGR Lululemon achieved over the last three years.
Several headwinds help explain this shift. Lululemon itself lowered its annual EPS guidance from $14.95–15.15 to $14.58–14.78. Tariffs are partly to blame: the company manufactures most of its garments in Southeast Asia, and export tariffs imposed during the Trump administration are likely to pressure profit margins, even though Lululemon has been testing price increases and negotiating costs with suppliers.
Beyond tariffs, Lululemon has faced both demand and supply challenges. In the domestic market, same-store sales fell 2% in Fiscal Q1, while international growth remained modest at 6%. Rising competition from brands like Alo Yoga and Vuori, which are heavily investing in influencer marketing, has contributed to weak domestic sales. Missteps in tracking these trends created a “perfect storm,” with inventories surging 23% in Q1—signaling turnover issues and forcing promotions that pressure margins.
Why Lululemon Remains Compelling
Firstly, even with the odds stacked against Lululemon, the company continues to show extremely robust fundamentals. While projections point to some pressure on margins, operating margins still stand at 23.3% over the last twelve months, above the five-year average of 21.5%. This demonstrates that Lululemon’s ability to generate operational value for shareholders remains very strong.
Strong margins naturally translate into higher returns on invested capital. For example, Lululemon’s ROIC is an impressive 31.7%—far above global sports brands like Nike (NKE) and Adidas (ADDYY), which deliver around 11–12%. This stems from Lululemon’s high pricing power as a premium brand and its low capital-intensive model, relying primarily on outsourced production rather than owning factories.
To put the ROIC into perspective, consider that Lululemon’s WACC is just 6–7.5%, thanks to its solid balance sheet and very low debt. This creates a spread of 24–26 percentage points—enormous by any standard.
In practical terms, this means every dollar of capital that Lululemon invests generates far more return than the company’s cost of that capital. A spread this large points to a sustainable moat, driven by pricing power and highly efficient capital management, which translates into endurable profits and strong cash generation.
Lululemon’s Earnings Yield Tells the Story
Lululemon already stands out for its high margins and robust ROIC, generating returns on capital well above its WACC. For long-term investors, the ideal timing is when companies with such solid fundamentals trade at attractive prices. In this context, the company’s operating profit (EBIT) divided by its enterprise value (EV) serves as a useful gauge of valuation. Over the last twelve months, Lululemon generated $2.51 billion in operating income and trades at an EV of $24 billion, giving it an earnings yield of ~10.45%—well above its cost of capital.
To highlight how discounted Lululemon shares are, the stock currently trades at a forward earnings multiple of 13.5x—about a quarter below the industry average and the lowest levels since 2023. These levels are also close to the support seen in 2020, at the peak of the pandemic.
Over the long term, given Lululemon’s solid ability to generate earnings, going long at these depressed levels seems very compelling. While medium- and long-term technical indicators show a negative trend, a recovery of the 50- and 100-day SMAs (between $220 and $255)—potentially aided by short- to medium-term macro tailwinds—could support a consistent upward path once again.
What Is LULU’s Price Target?
The consensus among Wall Street analysts on LULU is somewhat split. Of the 24 experts covering the stock over the past three months, twelve recommend Buy, eleven recommend Hold, and just one recommends Sell. Although several analysts have lowered their price targets in recent weeks, LULU’s average stock price target remains at $280.20—implying an upside potential of 41% from the current share price.
LULU Re-Rating Overshoots Into Buying Opportunity
The market has justifiably re-rated Lululemon stock as its growth story slows, driven by potentially temporary issues like tariffs and operational missteps such as inventory markdowns, but also by structural factors, including slowing demand amid rising competition in the luxury athleisure space. In my view, amid current overly depressed valuations, the market has already more than priced in these headwinds.
Even if this environment persists for some time, Lululemon’s growth trajectory still ensures a substantial moat, supported by high returns on invested capital far above its cost of capital. That said, in the short term, a meaningful turnaround in the share price will likely require breaking medium- and long-term moving averages. For long-term investors, however, buying at these discounted levels looks pretty compelling.