Is It Time to Revisit Lululemon After a 54% Drop in 2025?

• Wondering if lululemon athletica is a hidden bargain or has further to fall? You are not alone—the stock’s story is capturing the attention of both seasoned investors and curious newcomers.
• Shares have dropped sharply, with a 54.2% decline so far this year and a 46.9% decrease over the past twelve months. This has sparked conversation about whether we are close to a turnaround or if there is still more risk ahead.
• Recent headlines have focused on shifting consumer spending trends and heightened competition within the activewear market, both of which may help explain the recent share price pressure. The company's moves to expand internationally and refresh product offerings have kept it in the news and added new angles to the debate over its future value.
• Based on Simply Wall St’s six-point valuation check, lululemon athletica scores 5 out of 6 for being undervalued. Let’s dive into what that actually means for investors, and stick around for a look at a smarter way to size up this stock’s real worth by the end of our analysis.

Find out why lululemon athletica's -46.9% return over the last year is lagging behind its peers.

Approach 1: lululemon athletica Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a method that estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to their present value. This helps assess what the company is truly worth today, based on expected future performance rather than just current earnings or assets.

For lululemon athletica, current free cash flow over the last twelve months stands at $1.16 Billion. Analyst estimates for the next several years suggest this could grow steadily, reaching about $1.60 Billion by 2030. It is important to note that projections beyond five years are typically less certain. In this case, further out years are extrapolated rather than directly forecasted by analysts.

According to this two-stage DCF model, the estimated intrinsic value for lululemon athletica stock is $255.72 per share. This represents a 33.3% discount compared to the current trading price, signaling that the stock may be significantly undervalued by the market based on these cash flow estimates.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests lululemon athletica is undervalued by 33.3%. Track this in your watchlist or portfolio, or discover 831 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for lululemon athletica.

Approach 2: lululemon athletica Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like lululemon athletica, as it shows how much investors are willing to pay today for a dollar of the company's earnings. This ratio is most meaningful for firms with steady or growing profits, making it a relevant choice for understanding whether the stock's price reflects its earnings potential.

Growth expectations and risk play a significant role in determining what constitutes a "normal" or "fair" PE ratio. Companies expected to grow earnings quickly or with lower risks typically justify higher PE multiples, while those facing uncertainty or slower growth tend to see lower ratios.

Currently, lululemon athletica trades at a PE ratio of 11.3x. This is not only much lower than the industry average of 19.5x but also far below the 60.2x average seen among its peers. Despite this, Simply Wall St's proprietary "Fair Ratio" for lululemon athletica is 17.1x. The Fair Ratio is designed to reflect the multiple the company deserves based on specific factors like earnings growth, profit margins, industry dynamics, market cap and the risks it faces, offering a more customized benchmark than just using broad industry numbers or peer comparisons.

By comparing lululemon athletica’s actual PE to its Fair Ratio, the stock appears meaningfully undervalued, trading well below what its fundamentals and outlook would warrant according to this holistic measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your lululemon athletica Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple way to add your own story to lululemon athletica’s numbers by connecting your perspective on the company’s future, such as its sales growth, margins, or risk factors, with a financial forecast and fair value estimate. This approach lets you see how your viewpoint or expectations could play out in dollar terms, making your investment analysis more personal and powerful.

Narratives are an accessible tool, available on Simply Wall St’s Community page. Used by millions of investors, this tool makes building and testing your thesis for lululemon athletica easy and interactive. You can update your Narrative as new data or news becomes available, instantly seeing the impact on your fair value estimate and investment decision. For example, if you believe lululemon will bounce back strongly with double-digit revenue growth and robust margins, your Narrative might justify a fair value as high as $225.76 per share. On the other hand, if you expect headwinds and compressed margins, your strict scenario could place fair value closer to $100 per share. With Narratives, anyone can turn what they believe about lululemon athletica into clearer, data-driven investment decisions.

Do you think there's more to the story for lululemon athletica? Head over to our Community to see what others are saying!

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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