Is Lululemon a Bargain Buy After Recent Downgrades?

Lululemon athletica (NASDAQ:LULU) has faced a turbulent summer, with a series of downgrades from Wall Street analysts and a sharp selloff in its stock price. The question now is whether this pullback represents a compelling value opportunity for patient investors. To assess this, we must dissect the company’s recent challenges, its financial resilience, and the long-term potential of its global expansion strategy.

The Downgrades: A Symptom of Short-Term Pain

UBS led the bearish charge, slashing its price target for LULU to $240 from $290 while maintaining a Neutral rating. The firm cited weak August sales momentum, a 1% U.S. sales growth in Q2, and the risk of a 20c EPS guidance cut due to rising tariffs and cost pressures [1]. JPMorgan and Wells Fargo followed suit, lowering their targets to $191 and $160, respectively, as concerns mounted over lululemon’s ability to revamp its operating model and address product missteps in underperforming categories like loungewear and social apparel [3].

These downgrades reflect a near-term struggle: the U.S. market, which accounts for the majority of lululemon’s revenue, is grappling with soft demand and margin compression. Tariff hikes and the removal of the de minimis exemption have added $150 million in annual costs, forcing the company to revise its full-year revenue forecast downward to $10.93 billion at the midpoint [5]. Yet, as history shows, value investors often thrive when markets overreact to short-term headwinds.

Valuation Metrics: A Discounted Premium

Lululemon’s current valuation appears unusually attractive. As of September 5, 2025, the stock trades at a P/E ratio of 11.43, well below the industry average of 16.08 [2]. Its price-to-book ratio of 5.76 further underscores its undervaluation relative to tangible assets [5]. These metrics suggest that the market is pricing in a worst-case scenario, despite lululemon’s robust balance sheet.

The company ended Q2 2025 with $1.2 billion in cash and cash equivalents, a debt-free position, and $4.39 billion in equity [1]. This financial fortitude provides a buffer against macroeconomic volatility and allows lululemon to fund its aggressive international expansion without relying on costly debt. Indeed, its Rest of World segment—excluding China—grew 17% in constant currency during Q1 2025, driven by strong performance in Europe and the Asia-Pacific region [2].

International Expansion: The Long-Term Catalyst

While the U.S. business stumbles, lululemon’s international markets offer a beacon of hope. International sales currently account for just 20% of total revenue, leaving ample room for growth as the company opens new stores in high-potential regions. For example, lululemon plans to expand its footprint in Germany, France, and Australia, where brand awareness and discretionary spending remain high [2].

Analysts acknowledge that this international push is not without risks—tariff pressures and currency fluctuations could dampen margins—but the long-term upside is undeniable. As SimplyWall St notes, “lululemon’s global expansion narrative remains intact, with international markets representing a significant growth lever” [5]. This aligns with the company’s historical trajectory: over the past five years, lululemon has averaged 21.62% revenue growth, far outpacing the Apparel, Footwear & Accessories industry’s 2.65% contraction in Q1 2025 [3].

Is the Selloff a Bargain?

The stock’s 18.1% drop following the Q2 earnings report—a rare stumble for a company that once traded near $423.32 [3]—has left it trading at a 58% discount to its 52-week high. While this volatility is unsettling, it may represent an overcorrection. Lululemon’s earnings per share for the trailing twelve months stands at $14.70, reflecting a 17.98% year-over-year increase [5]. Even with the revised guidance, the company’s GAAP EPS of $3.10 in Q2 exceeded estimates by 8.7% [1], demonstrating operational resilience.

Critics argue that lululemon’s U.S. struggles and product missteps could erode its premium brand positioning. However, its core activewear category remains strong, and its ability to innovate—such as through its “Digital Sweat” community engagement—suggests a durable moat. As Goldman Sachs recently noted, “lululemon’s brand equity and customer loyalty provide a floor for its valuation, even in a downturn” [4].

Conclusion: A Calculated Bet for Patient Investors

Lululemon’s recent downgrades and stock price plunge have created a compelling entry point for value investors who can look beyond near-term turbulence. The company’s discounted valuation, fortress balance sheet, and underpenetrated international markets offer a compelling risk-reward profile. While the U.S. business requires a strategic reset, lululemon’s long-term growth levers—particularly in Asia-Pacific and Europe—remain intact.

For those willing to weather short-term volatility, lululemon’s pullback may represent a rare opportunity to invest in a brand with a proven ability to adapt and thrive. As Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” In lululemon’s case, the market’s fear may be the catalyst for a bargain buy.

Source:
[1] UBS Slashes lululemon athletica inc. (LULU)'s Price Target to $240 from $290 While Maintaining a Neutral Rating [https://finance.yahoo.com/news/ubs-slashes-lululemon-athletica-inc-062021980.html]
[2] Lululemon's Hidden Growth Engine: Why International [https://www.fool.com/investing/2025/09/03/lululemons-hidden-growth-engine-why-international/]
[3] Lululemon Athletica Inc Growth Comparisons [https://csimarket.com/stocks/growthrates.php?code=LULU]
[4] Lululemon Sees Multiple Wall Street Downgrades Amid US Struggles [https://stocktwits.com/news-articles/markets/equity/lululemon-sees-multiple-wall-street-downgrades-amid-us-struggles/chwIa4xRdpw]
[5] Lululemon (LULU) Research Report [https://stockstory.org/us/stocks/nasdaq/lulu]