Undervalued Growth Stocks to Watch for 2026: Alibaba and Lululemon Athletica

Two growth stocks, Alibaba and Lululemon Athletica, have seen their share prices collapse over the past few years due to macroeconomic headwinds. Alibaba's solid long-term prospects, including its AI capabilities and cloud computing business, could lead to a rebound, potentially returning 50% by the end of 2026. Lululemon Athletica's premium brand and lucrative position in the activewear market make it a potentially undervalued investment.

Two prominent growth stocks, Alibaba and Lululemon Athletica, have seen their share prices decline significantly over the past few years due to macroeconomic headwinds. However, their long-term prospects remain promising, setting them up for a potential rebound.

Alibaba Group (NYSE: BABA)

Alibaba, a leading tech company, has been experiencing a resurgence in its stock price, rising approximately 50% over the past year [1]. Despite its recent gains, the stock continues to trade at a modest valuation, with a forward earnings multiple of 14. The company's total sales across e-commerce, logistics, and digital entertainment have been growing at single-digit rates, but its AI capabilities are largely underappreciated by the market.

Alibaba's e-commerce marketplaces, such as Taobao and Tmall, have shown steady growth, with commerce segment revenue increasing by 9% year over year in the March-ending quarter [1]. The integration of AI across its e-commerce businesses is expected to enhance customer experience, improve content discovery, and boost product recommendations. Additionally, Alibaba's cloud computing business has experienced strong demand, with AI-related services growing at over 100% year over year for seven consecutive quarters.

If the economy continues to improve and Alibaba demonstrates strength in its core businesses, investor sentiment could become more bullish, potentially driving the stock price back to $200 by the end of 2026, representing a 60% increase from current levels [1].

Lululemon Athletica (NASDAQ: LULU)

Lululemon Athletica, a premium activewear brand, has been trading at a steep discount, with the stock currently valued at just 13 times this year's consensus earnings estimate [1]. Despite this, the company has grown revenue and earnings at high double-digit rates over the past decade. Lululemon operates one of the most efficient and profitable store operations in retail, with sales per square foot of $1,574 in 2024, placing it between luxury brands like Tiffany's and discount retailers [1].

Management is aiming to bolster its stores' sales efficiency by expanding the size of its stores to capture sales opportunities across men's, women's, and accessories. Given Lululemon's high profit margin of about 17%, more investment in improving sales efficiency could boost its earnings growth. International growth is also a significant opportunity, with Lululemon's international revenue growing 19% year over year last quarter compared to 3% in the Americas [1].

The Wall Street average price target for Lululemon is $283, representing an upside of 41%, but the stock could easily hit $300 if market sentiment improves. This would require the stock to trade at just 19 times next year's consensus earnings estimate and rise by 50% from the current $200 share price [1].

Conclusion

Both Alibaba and Lululemon Athletica appear to be undervalued investments with strong long-term prospects. While macroeconomic headwinds have impacted their share prices, their robust fundamentals and growth opportunities suggest that they could return 50% by the end of 2026. Investors should consider these stocks as part of their long-term investment strategy.

References:
[1] https://finance.yahoo.com/news/undervalued-growth-stocks-could-surge-121700705.html
[2] https://www.marketscreener.com/news/alibaba-cloud-launches-model-studio-exclusive-at-indonesia-ai-conference-2025-ce7c51ddda89f721