3 Things to Know About Lululemon Athletica Stock Before You Buy

Key Points

• Lululemon has been a leader in the athleisure clothing market for some time now.

• When you boil down the company's model, it's essentially a high-end fashion retailer.

• Investors looking at the recent price drop should understand what they are buying and why.

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

Lululemon Athletica (NASDAQ: LULU) has a cultlike following, with stores that are often crowded with customers. That's good news for the business, but what exactly is the business? On the surface, Lululemon sells athletic wear. But when you look at the price tags on its clothing, it becomes clear that the products it sells are luxury items.

Here are three things you need to understand before you buy the stock.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

1. Fashion is the driving force

Lululemon isn't making clothing basics. Yes, you could easily argue that sweatpants, bras, and leggings are basic attire. But the price tag on its items push it into a higher category.

That's great for margins, but it means that the company has to live up to a different standard than, say, Champion-branded attire would.

Image source: Getty Images.

Quality missteps, as have happened in the past, can become a public black eye for the retailer. Fashion missteps, too, can lead to bad publicity. And both can result in customers looking to other brands to get their fashion fix.

Being a hot brand has long propelled Lululemon, but you can't forget the flip side of that proposition if you buy the stock. This retailer's financial performance is going to be driven by the whims of often mercurial consumers. Fashion trends, recessions, and simply customer fatigue will all be issues that can upend the company's results.

Its weak guidance for the second half of 2025 highlighted tariff issues. However, same-store sales (comps) in the Americas fell 4%, which suggests that the brand may not be resonating quite as well as hoped right now.

2. There are two growth methods for Lululemon

The weak guidance for the rest of 2025 led to a swift stock price decline. That's not unreasonable, but comps aren't the only important factor to consider when looking at Lululemon's ability to grow.

Comps measure how stores that were open for at least a year are performing. It is a vital assessment of the business, but Lululemon is quite profitable, and its balance sheet has no long-term debt and over $1 billion in cash. It has plenty of time to work through fashion issues, even though they can cause real earnings problems in the short term.

LULU data by YCharts

And there's another method for growth: opening new stores. In the second quarter of 2025, the company brought on 14 news stores, bringing its total store count to 784.

New stores add materially to the top line of the income statement and can cover over weak comps numbers. That's what happened in the second quarter, with revenue in the Americas up 1% despite the comps weakness.

And then there's the company's opportunity internationally, where comps remain strong, and there is still plenty of room for new locations. To put numbers on that, comps in the international segment rose 15% with overall sales in that division up 22%.

A bad stretch isn't likely to turn Lululemon into a bad business, even if a weak patch turns Wall Street sour on the stock.

3. The price drop has the stock looking (relatively) cheap

Valuation is the crux of the story, since Lululemon's stock has lost around two-thirds of its value since hitting all-time highs in late 2023. To be fair, deep drawdowns are pretty normal for the stock, with multiple 40% declines in its past. But a 66% decline is fairly large, with only one similar drop early on in its history.

Looking at the company's valuation metrics after the current huge price decline suggests that the stock is cheap right now. Its price-to-sales, price-to-earnings, and price-to-book-value ratios are all well below their five-year averages.

For more-aggressive investors with a growth focus, that could be an opportunity. Those who believe in growth at a reasonable price (GARP) might also find the story appealing.

Make sure you understand what you are buying with Lululemon

Lululemon is facing a difficult period, but it isn't a bad business. And it can continue to grow its store base even while it works through fashion-related issues.

If you are a long-term investor who can handle the ups and downs of owning a high-end, fashion-driven retailer, it could be worth owning. If you are conservative, however, Lululemon's basic business model probably won't fit well with your investing temperament.

Should you invest $1,000 in Lululemon Athletica Inc. right now?

Before you buy stock in Lululemon Athletica Inc., consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lululemon Athletica Inc. wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $652,872!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,092,280!*

Now, it’s worth noting Stock Advisor’s total average return is 1,062% — a market-crushing outperformance compared to 189% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 22, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.