Is It Time To Reassess Lululemon (LULU) After A 36% One Year Share Price Slide

• If you are wondering whether lululemon athletica's current share price really reflects what the business is worth, you are not alone. This article is built to unpack that question clearly.
• The stock last closed at US$166.51, with returns of 6.9% over the past week and 2.3% over the past month, against a backdrop of a 21.0% decline year to date and a 36.2% decline over the last year.
• Recent headlines have focused on lululemon athletica's position in the premium athletic and athleisure market, including ongoing product launches and brand collaborations that keep it in the spotlight. At the same time, commentators have also been discussing competition in the activewear space and how shifting consumer spending patterns could affect brands like lululemon athletica.
• With a valuation score of 3/6, the stock screens as undervalued on half of Simply Wall St's checks. It is therefore worth looking at how traditional valuation approaches compare with a more rounded view of the company that will be covered at the end of this article.

Find out why lululemon athletica's -36.2% return over the last year is lagging behind its peers.

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

A Discounted Cash Flow model estimates what a business could be worth by projecting future cash flows and discounting them back to today’s value using a required return.

For lululemon athletica, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model based on cash flow projections. The latest twelve month Free Cash Flow is about $885.8 million. Analyst estimates and extrapolated figures point to projected Free Cash Flow of $1,042 million in 2029, with a series of annual projections between 2026 and 2035 ranging roughly between $977 million and $1,193 million, all in $.

After discounting those projected cash flows, the model arrives at an estimated intrinsic value of about $132.87 per share. Compared with the recent share price of $166.51, the DCF output suggests the stock is about 25.3% overvalued on this measure.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests lululemon athletica may be overvalued by 25.3%. Discover 62 high quality undervalued stocks or create your own screener to find better value opportunities.

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

For a profitable company, the P/E ratio is a straightforward way to relate what you pay for the stock to the earnings the business is currently generating. It lets you compare different companies on the same footing by showing how many dollars investors are paying for each dollar of earnings.

What counts as a “normal” or “fair” P/E depends a lot on what the market expects for future growth and how risky those earnings are. Higher expected growth and lower perceived risk often go with a higher P/E, while lower growth expectations or higher risk usually mean a lower P/E.

lululemon athletica currently trades on a P/E of 12.19x. That sits below the Luxury industry average of 20.11x and also below the peer group average of 37.37x. Simply Wall St’s Fair Ratio for lululemon athletica is 17.36x, which is its proprietary estimate of what the P/E “should” be given factors such as the company’s earnings growth profile, profit margins, industry, market capitalization and risk characteristics.

Compared with a simple industry or peer comparison, the Fair Ratio aims to be more tailored because it adjusts for those business specific drivers rather than assuming all companies deserve the same multiple. Set against this Fair Ratio, lululemon athletica’s current P/E of 12.19x sits meaningfully lower, which points to the shares being undervalued on this measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your lululemon athletica Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in, giving you a simple way to attach a story about lululemon athletica to the numbers you use for fair value, revenue, earnings and margin estimates.

A Narrative on Simply Wall St is your version of the lululemon athletica story, written out as clear assumptions that link what you think about the brand, its products and its risks directly to a financial forecast and then to a fair value per share.

Instead of only comparing P/E ratios or DCF outputs, you choose or create a Narrative on the Community page. Then you can see how its Fair Value compares with the current share price to help you decide whether lululemon athletica looks attractive, fully priced or expensive to you.

Narratives on the platform update automatically when new earnings, guidance, news or analyst inputs are added, so your story is not fixed. It shifts as fresh information comes through.

For example, one optimistic lululemon athletica Narrative currently points to a Fair Value around US$409.62, while a more cautious bearish Narrative points to about US$117.16. This allows you to quickly see how different views on growth, margins and P/E can lead to very different conclusions and then decide which story feels closest to your own.

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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