Does Lululemon’s Recent 5% Surge Signal a Potential Opportunity for Investors in 2025?

If you are watching lululemon athletica right now, you are in good company. Investors everywhere are trying to figure out what to make of its recent stock performance. After all, despite all the buzz, the stock is down roughly 44% year-to-date and has lagged over the past year as well. And yet, there is still plenty of optimism beneath the surface. Just in the last week, the stock posted nearly a 5% gain as the broader market has started to look more kindly on retail names with growth stories. It is not just about price moves, though. Lululemon continues to deliver solid numbers and capture consumer interest, even as market sentiment turns cautious about premium retail. That mix of short-term volatility and long-term growth potential has people asking the big question: is LULU undervalued right now, or is the market trying to tell us something? On a purely numerical basis, the valuation score for lululemon is 5 out of 6, which suggests the company is undervalued in the majority of traditional checks analysts follow. That kind of rating is enough to make anyone look twice, especially when a 40% discount to intrinsic value and a target price far above today’s close stand out in recent models. The way valuation has been measured matters a lot in this case. Coming up, we will break down the main valuation approaches, show you exactly what drives each one, and look at why some methods may miss the bigger picture. Also, stick around for a smarter way to think about what LULU is really worth. lululemon athletica delivered -22.7% returns over the last year. See how this stacks up to the rest of the Luxury industry.

Approach 1: lululemon athletica Cash Flows

A Discounted Cash Flow, or DCF, model is a way to value a company by estimating how much cash it will generate in the years ahead and then translating those future cash streams into today's dollars. This approach helps investors figure out what the business could really be worth right now, based on solid forecasts rather than just market sentiment.

For lululemon athletica, the most recent Free Cash Flow is approximately $1.28 billion, and analysts expect this figure to keep climbing over time. In fact, projections show Free Cash Flow could reach about $2.07 billion by 2030. This growth profile forms the backbone of the DCF, which in this case uses a two-stage model to reflect how cash flow expansion might change as the business matures.

Based on these projections, the DCF calculation arrives at an estimated intrinsic value of $346 per share. Comparing this figure to the current share price, the model suggests lululemon is trading at a 40% discount to its fair value. In summary, the DCF analysis indicates the stock is 40% undervalued at today’s prices, which could be attractive to long-term investors interested in cash flow strength.

Result: UNDERVALUED

Our DCF analysis suggests lululemon athletica is undervalued by 40.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: lululemon athletica Price vs Earnings

For profitable companies like lululemon athletica, the Price-to-Earnings (PE) ratio is a go-to valuation tool. By comparing the market price to a company's earnings, this metric gives investors a quick way to gauge how much they are paying for each dollar of profit. This measure is especially useful when profits are consistent and robust.

The appropriate PE ratio for a stock depends on the level of growth investors expect, as well as the perceived risks associated with that growth. Fast-growing, low-risk businesses often have higher PE ratios, while companies with slower growth or greater uncertainty typically trade at lower multiples. So, where does lululemon fit in?

Currently, lululemon trades at a PE of 13.7x. This is lower than the luxury industry average of about 20x, and significantly below the peer average of 64.4x. To provide additional perspective, Simply Wall St’s Fair Ratio for lululemon, calculated in light of its business strength, growth outlook, and risks, is 16.7x.

Comparing lululemon’s current PE to its Fair Ratio suggests the stock may be undervalued on this basis. The market is pricing the company below what a fair multiple would indicate, which could be seen as a positive sign if the business continues to perform well.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your lululemon athletica Narrative

Narratives offer a smarter and more dynamic way to make investment decisions by bringing a company’s story and your perspective to the forefront. Instead of focusing solely on numbers, a Narrative connects what you believe about a business—such as its growth drivers, potential risks, and future outlook—to a concrete financial forecast and a fair value estimate.

On Simply Wall St, Narratives allow any investor to set their own assumptions for lululemon athletica, create a fair value based on those beliefs, and compare it to the current share price. This happens within a supportive community of millions of investors. This approach can help you assess if the timing is right for your investment decisions by linking the story you believe in with the numbers that matter.

Narratives are dynamic tools that update automatically whenever meaningful news, earnings, or data change, ensuring your investment thinking evolves in real time. For lululemon, for example, one Narrative might forecast a fair value of $500 per share with ambitious growth expectations. Another more cautious view could estimate fair value closer to $155. This demonstrates how each investor’s unique perspective leads to a different conclusion.

Do you think there's more to the story for lululemon athletica? Create your own Narrative to let the Community know!

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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