Lululemon's Stock Valuation Amid Shifting China Demand Dynamics: Strategic Buying Opportunity or Enduring Slowdown?

The recent price target reduction for Lululemon (NASDAQ:LULU) by Bank of America (BofA) has sparked debate among investors about whether the move signals a strategic entry point or a deeper structural slowdown in the brand's growth trajectory. BofA cut its price target to $185 from $210 on September 12, 2025, citing “slower China growth” and “improved tariff mitigation strategies” as key driversBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1]. While the firm maintained a “Neutral” rating, it simultaneously raised its fiscal 2026 earnings per share (EPS) estimate by 1% to $13.15, reflecting a nuanced view of the company's long-term potential amid near-term headwindsBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1].

BofA's Rationale: A Rebalancing of Growth Expectations

BofA's adjustment hinges on two critical factors: the deceleration of Lululemon's China growth and the company's evolving cost structure. The bank reduced Lululemon's price-to-earnings (P/E) multiple from 16x to 14x, aligning it with peers that exhibit similar growth profilesBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1]. This recalibration suggests that BofA views Lululemon's valuation as no longer warranting a premium to the broader market. However, the firm's upward revision of 2026 EPS estimates indicates confidence in the company's ability to navigate challenges such as U.S. market softness and tariff-related costs, which are projected to reduce full-year profits by $240 millionBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1].

China's Role: A Tale of Two Eras

Lululemon's China business has long been a growth engine. In Q1 2025, the region contributed $368.1 million in revenue—a 21% year-over-year increase—accounting for 12.38% of total company salesLululemon’s Net Revenue in Greater China Surged 22% Year-over^[2]. This growth was fueled by product innovation (e.g., the Define and ShowZero™ collections) and aggressive expansion into second- and third-tier cities, where store counts surged from 86 in early 2022 to 114 by mid-2023Lululemon’s Net Revenue in Greater China Surged 22% Year-over^[2]. However, recent data reveals a moderation in momentum. For instance, while China's revenue share rose from 9.1% in 2022 to 12.38% in 2023, Q2 2025 results showed Lululemon missing revenue expectations despite beating EPS forecasts, partly due to U.S. market challengesBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1].

The broader Chinese athletic apparel market is also evolving. Domestic brands like Anta Sports and Li-Ning have gained ground, with Anta reporting a 13.8% revenue increase in H1 2024 to 33.735 billion yuanChinese major sportswear brands report strong growth in 2024 H1^[3]. Meanwhile, Lululemon's P/E ratio of 11.03–11.45 (as of September 2025) trails peers such as Nike (33.48x) and Adidas (29.15x), suggesting a discount relative to its global competitorsAnta Sports (2020.HK) - P/E ratio^[4]. This discrepancy may reflect skepticism about Lululemon's ability to sustain its premium pricing in China, where rising competition and shifting consumer preferences are reshaping the landscapeChallenges and Opportunities: Lululemon’s Performance in China^[5].

Valuation Analysis: Undervaluation or Sector-Wide Trend?

Lululemon's current P/E ratio is notably lower than the 14.1 P/E of the CSI 300 Index (a broad China benchmark) and significantly below the 28.85 P/E of the global Apparel, Footwear & Accessories sectorApparel, Footwear & Accessories Industry Price To Earnings Ratio^[6]. This divergence positions Lululemon as a potential undervaluation candidate, particularly given its strong balance sheet and brand equity. For context, Anta Sports—China's leading athletic brand—trades at a 13.0 P/E, while Li-Ning carries a 16.7x multipleAnta Sports (2020.HK) - P/E ratio^[4]. Lululemon's 11x P/E suggests it is priced for more conservative growth assumptions, even as its market capitalization ($20.1 billion) dwarfs that of its Chinese counterpartsAnta Sports (2020.HK) - P/E ratio^[4].

However, the discount may also reflect legitimate concerns. Tariff pressures, U.S. market saturation, and the rising cost of scaling in China's increasingly competitive retail environment could constrain margins. BofA's 14x multiple adjustment implies that the market is pricing in a “growth premium” reduction, aligning Lululemon with peers that offer comparable revenue expansion but at lower valuationsBofA Cuts Lululemon (LULU) PT to $185 on Slower China Growth, …^[1].

Strategic Implications for Investors

The question of whether BofA's price target cut represents a buying opportunity hinges on two variables: the durability of Lululemon's China growth and the company's ability to offset U.S. headwinds. On one hand, the stock's current valuation appears attractive relative to its fundamentals, particularly given its strong cash flow generation and brand loyalty. On the other, the slowdown in China—a market that now accounts for over 12% of total revenue—raises questions about the sustainability of its growth model.

For long-term investors, the discount may present an opportunity to acquire shares at a price that underweights Lululemon's long-term brand strength and international expansion potential. However, those with a shorter time horizon may view the cut as a cautionary signal, reflecting the market's skepticism about near-term earnings resilience.

Conclusion

BofA's revised price target for Lululemon reflects a recalibration of expectations rather than a dismissal of the company's long-term prospects. While the stock's valuation appears undervalued relative to peers, the underlying factors—slower China growth and tariff pressures—cannot be ignored. Investors must weigh the potential for a re-rating against the risks of prolonged margin compression. For now, Lululemon remains a compelling case study in the interplay between global brand strength and regional market dynamics.