Lululemon vs. Nike: Which Growth Stock Offers the Best Value After the Drop?

In a market defined by volatility and skepticism toward growth stocks, two athletic apparel giants—Lululemon (LULU) and Nike (NKE)—have seen their shares slump by over 40% in recent years. Yet, their contrasting fundamentals and valuation metrics now present investors with a critical question: Which stock offers a superior buying opportunity?

Let's dissect their valuations, growth prospects, and risks to find an answer.

Valuation: Lululemon's Discounted Appeal vs. Nike's Overvaluation

Both stocks have experienced steep declines, but their current valuations tell different stories.

Lululemon: A Valuation Bargain?

LULU's stock price has dropped to $265.27 as of June 6, 2025 (a 42% decline from its 2023 peak of $511.29). Its P/E ratio of 21.61 is 50% below its 10-year average, while its EV/EBITDA of 10.81 is a steep discount to peers. Analysts estimate its fair value at $404.56 (a 52% upside), though a lower EPV model suggests $184.14, highlighting uncertainty.

Nike: Overvalued Despite Stability

Nike's shares have slumped to $62.80, down from a 52-week high of $123.39 (a 49% drop). While its P/E of 20.13 is reasonable, its EV/EBITDA of 14.37 (vs. LULU's 10.81) suggests less value. Crucially, analysts project a fair price of $39.53, implying a -36.8% downside from current levels. Nike's dividend yield of 2.08% and stable cash flows offer some comfort, but its overvaluation is hard to ignore.

Growth Catalysts: Lululemon's Momentum vs. Nike's Maturity

Lululemon: The Growth Story Holds Promise

LULU's premium brand positioning and expansion into men's and outerwear categories have driven sales growth, even amid tariff headwinds. Its P/S ratio of 3.02 (vs. the sector's 3.41) reflects undervaluation relative to its 20%+ annual sales growth potential. Additionally, its strong EBITDA margins (despite recent dips) and digital innovation (e.g., personalized fitness apps) position it to capitalize on the $600B athletic apparel market.

Nike: The Growth Engine Slows

Nike's $49B annual revenue and global dominance are undeniable, but its growth rate has plateaued. While its Q2 2025 sales rose 7.6% to $13.3B, this lagged LULU's pace. Nike's focus on China re-engagement and digital channels may help, but its mature business model struggles to offset rising supply chain costs and consumer preference shifts toward smaller, trend-driven brands.

Risks: Navigating Tariffs, Margins, and Market Sentiment

Lululemon's Weaknesses

• Tariff Uncertainty: Supply chain costs remain a threat, as seen in its Q1 2025 EPS miss.
• Brand Saturation: Can LULU sustain premium pricing in competitive markets?
• Execution Risks: Expanding into new categories (e.g., outerwear) requires flawless execution.

Nike's Challenges

• Overvaluation Trap: Its stock trades above fair value, leaving little margin for error.
• Margin Pressures: Nike's Q2 operating margin dipped to 11%, signaling cost pressures.
• Consumer Shifts: Younger buyers increasingly favor direct-to-consumer brands like Allbirds.

Investment Decision: Lululemon Offers Better Value—But Buy With Caution

While both stocks are battered, LULU's valuation multiples and growth trajectory make it the more compelling opportunity:
1. Undervalued Metrics: Its EV/EBITDA of 10.81 and DCF-driven upside suggest a 50%+ return potential if growth resumes.
2. Strong Catalysts: Expansion into untapped markets (e.g., Asia-Pacific) and product innovation could reignite momentum.

Nike, however, is a cautionary tale: Its overvaluation and stagnant growth make it a hold at current levels. Investors seeking dividends might consider it for income, but capital appreciation is unlikely.

Final Takeaway

In a volatile market, Lululemon emerges as the better buy for growth-oriented investors. Its discounted valuation, robust brand, and growth catalysts justify a position. Nike, while stable, is overpriced and lacks the catalysts to justify its current valuation.

Recommendation:
- Buy LULU if you can tolerate volatility and believe in its growth story.
- Avoid NKE unless you're targeting dividends and can accept downside risk.

As always, diversify and monitor macro risks like inflation and consumer spending.

John Gapper is a pseudonymous contributor to this analysis.