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Lululemon stock trades 68% below its record, as the market focuses on slower growth.
The company’s premium brand commands pricing power that supports high profits.
Lululemon Athletica (NASDAQ: LULU) stock has been on a disappointing run. After shares surged in the years leading up to their peak in December 2023, they have tanked 68%. They're down an alarming 57% this year (as of Nov. 17).
But investors should still be hopeful about this athletic apparel manufacturer and retailer. Here's one reason to be very, very excited about this consumer discretionary stock.
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Image source: Getty Images.
One obvious reason why investors will find it easy to be bullish on Lululemon is the valuation. The stock currently trades at a cheap price-to-earnings ratio of 11.2. This represents a significant discount to the S&P 500, which trades at a multiple of 25.7.
The market hasn't been pleased with slower revenue growth. What's more, competition is fierce in the apparel industry, with younger rivals vying for market share.
However, Lululemon is a quality business. It has a strong brand, known for premium and high-grade merchandise. Lululemon's pricing power is evident by the fact that it posted a superb gross margin of 58.5% in the fiscal 2025 second quarter (ended Aug. 3).
The business is still expanding, with huge gains coming in China. And its earnings power is impressive. Lululemon's net income increased at a compound annual rate of 33.7% over the past five years.
Value investors should take a closer look at the stock.
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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. The Motley Fool has a disclosure policy.
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