Lululemon’s valuation has fallen sharply, but a low earnings multiple does not automatically mean the stock has become low risk.
The source says Lululemon shares have lost about 47% over the past twelve months while the S&P 500 gained roughly 16%. The stock now trades at about 7.4 times earnings, compared with 21.5 times for the S&P 500.
That discount reflects weakening fundamentals as well as investor caution.
Revenue grew just 1.7% over the latest twelve-month period to $11.1 billion, after growing 9.2% in the prior period. In the most recent quarter, revenue fell 4.3% year over year. Operating margin declined to 17.8% from 23% a year earlier.
Management has also lowered expectations for fiscal 2026. Guidance now calls for earnings of $9.48 to $9.73 per share, down from $13.26 in fiscal 2025. Revenue is expected to decline 5% to 7% from the prior year.
The North American business remains the main concern. Management said leggings sales fell about 20% in fiscal Q2 and expects weakness in the region to continue through the second half of the fiscal year.
For fiscal Q3 2026, Lululemon expects an operating margin of about 6.5%, down sharply from 17% in the prior-year quarter. That makes the next report an important test of whether the current slowdown is progressing in line with management’s assumptions or deteriorating faster.
The company’s history also shows that large drawdowns are not unusual. According to the source, Lululemon fell an average of 38.8% across nine tracked market shocks since 2008, with several recoveries taking more than a year.
BTI’s view is that the stock’s low multiple should be interpreted as a risk signal as much as a valuation opportunity. If revenue and margins stabilize near guidance, the discount may eventually become attractive. If the next quarter shows a deeper deterioration, the current multiple may simply be reflecting falling future earnings rather than mispricing.