Lululemon (LULU) Stock Is 80% Below Its All-Time High: 1 Metric That Shows How Bearish Wall Street Has Become.

It's hard to imagine that Lululemon Athletica (NASDAQ: LULU) was once one of the best performing stocks on the market. Over the five-year stretch leading up to their all-time high in December 2023, shares had catapulted 321% higher.

But it's been a wildly disappointing story since then. This consumer discretionary stock currently trades 80% below that record (as of Sept. 24). The investment community has soured on this business due to a streak of poor financial results.

Here's one metric that highlights just how bearish Wall Street has become on Lululemon.

Image source: Getty Images.

Shares trade at a sizable discount to the overall market

Because the stock price has tumbled, it trades at an extremely cheap valuation. Investors can buy Lululemon shares by paying a price-to-earnings (P/E) ratio of 8.3. Compared to the S&P 500 index, this is a 64% discount.

Wall Street has become pessimistic toward this business, as the valuation demonstrates. The current P/E multiple is near the cheapest level in the company's almost entire two-decade public history. And it's significantly below the trailing 10-year average of 41.3.

Market participants that fall into the value investing camp might be interested in this opportunity. However, there are valid reasons to proceed with extreme caution. Once a thriving company, Lululemon is facing immense challenges.

Cheap for a reason

Growth has slowed dramatically. The business had an incredible streak going of posting double-digit year-over-year revenue gains. Then in fiscal 2026 (ended Feb. 1), the top line expanded by just 5%. During the most recent fiscal quarter (Q2 ended Aug. 2), Lululemon reported a rare revenue dip of 4%.

The sell-side analyst community expects tough times ahead. The consensus view is that the company's fiscal 2028 revenue will be $10.7 billion. This would be almost 4% lower than fiscal 2025's total. That's a stark reversal of fortunes, as revenue jumped 37% from fiscal 2022 to fiscal 2025.

Demand has come under pressure. Sales of women's leggings, the company's bread and butter, fell 20% in Q2. Comparable sales in China, historically a major growth market, were down 2%.

Despite positioning itself as a premium brand, Lululemon is realizing that competition is persistently fierce. Numerous rivals are all vying to capture consumer wallet share. And it has to place product innovation back at the center of its strategy. Customers need fresh assortments to constantly be excited about.

The uncertain macro environment isn't helping, either. Inflation remains elevated. And the Federal Reserve just hiked its fed funds interest rate. Tighter monetary conditions don't bode well for discretionary spending behavior. Lululemon faces an uphill battle.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.