1 Reason Every Investor Should Know About Lululemon (LULU)

Key Points

• Lululemon shares trade significantly below their peak from December 2023.

• Value investors might start to take a closer look at the beaten-down stock.

• It's easy to forget that Lululemon remains an extremely profitable business.

• 10 stocks we like better than Lululemon Athletica Inc. ›

Lululemon Athletica (NASDAQ: LULU) certainly isn't winning over the market these days. After providing a disappointing second-quarter 2025 (ended Aug. 3) financial update, shares have cratered. They fell 19% the following day.

Despite the fall, here's one reason that every investor should know about Lululemon.

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Selling on the discount rack

Lululemon is known for selling expensive athletic apparel and footwear. It's positioned at the premium end of the market. However, the stock is selling on the discount rack.

If investors wanted to buy this stock, they only have to pay a price-to-earnings (P/E) ratio of just 14. This represents a sizable 44% discount to the S&P 500 index. Nike, the heavyweight in the industry, trades at a much steeper P/E multiple of 34.9.

It's no wonder shares have become so cheap. In the past five years, Lululemon stock is down 53% (as of Sept. 5). And they currently trade 67% below their peak from less than two years ago. There is a ton of pessimism surrounding the business these days.

Focus on the positives

Investors might be interested in adding Lululemon to their watch lists. Despite the company's struggles, namely sluggish sales amid the macro headwinds and intense competition, there are reasons to be optimistic.

The company is still highly profitable. Its Q2 gross margin of 58.5% and operating margin of 20.7% are both superb figures. And these are coming at a time of great difficulty for Lululemon.

Additionally, management still sees growth potential on the horizon. Lululemon currently has 784 stores, but it plans to open 40 to 45 net new locations for all of fiscal 2025. A good portion of those will come internationally, particularly in China, where Lululemon posted strong same-store sales growth of 17% during the second quarter.

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