A Fresh Look at Lululemon (LULU) Valuation After UBS Downgrade and U.S. Sales Concerns

lululemon athletica (LULU) just landed in the spotlight after UBS moved to lower its outlook, driven by softer-than-expected U.S. sales growth in August and warnings about potential earnings pressure from ongoing tariffs. For investors eyeing the athletic apparel giant, this combination of demand worries and profitability challenges might feel like a reality check on the company's near-term story. The big question now is how these factors could shape lululemon's direction as it heads into the rest of the year.

It has been a choppy ride for lululemon shares throughout the past year, with the stock losing momentum and trailing its peers. Over the past twelve months, the share price is down more than 20%. After hitting some turbulence earlier in the year, the recent UBS downgrade seems to have reinforced skepticism, especially as growth expectations reset lower. Other developments, such as a new Chief AI & Technology Officer appointment, signal that the company is focused on long-term innovation. However, the near-term narrative remains clouded by slower sales and cost headwinds.

With the stock trading well below its highs and supply chain concerns still on the table, the question for investors is whether there is a bargain hiding beneath the current uncertainty or if the market is already factoring in the risks and pricing in any future growth.

Most Popular Narrative: 8.9% Undervalued

According to the narrative from mschoen25, lululemon athletica currently looks undervalued compared to its projected fair value, with nearly 9% discount implied in the latest analysis and a notable discount rate included in this outlook.

Positive Analyst Ratings: Recent analyst upgrades and positive ratings reflect growing confidence in Lululemon’s future prospects. Analysts have highlighted the company’s strong growth trajectory, innovative product offerings, and effective management as key reasons for their bullish outlook.

Want to know what is fueling this bullish call? The secret sauce lies in optimistic growth assumptions and future margins, giving Lululemon a valuation more often seen in industry leaders. What quantitative targets are at the base of this discount, and how bold are these profit forecasts? The details behind this fair value calculation might surprise even seasoned investors.

Result: Fair Value of $225.76 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, disappointing U.S. sales trends or unexpected impacts from tariffs could undermine the bullish case and put pressure on Lululemon's valuation in the near term.

Find out about the key risks to this lululemon athletica narrative.

Another View: SWS DCF Model Says Deeper Value

While the user narrative describes lululemon as undervalued based on its future profit outlook, our DCF analysis indicates the stock could be trading at an even greater discount. Both approaches point to value, but which one provides the complete picture?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out lululemon athletica for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own lululemon athletica Narrative

If you have a different take or want to dig into the numbers yourself, it's easy to craft your own assessment in minutes. Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding lululemon athletica.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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