2 Reasons to Buy Lululemon Stock (and 1 Reason to Sell)

Lululemon's stock has experienced a nearly 70% drawdown from its highs in 2025, driven by a significant growth slowdown in North America (1% YoY revenue increase) and broader concerns over apparel cyclicality. This sharp decline has pushed its valuation to an historically low EV/EBIT of 7.75, presenting a potential buying opportunity for investors. Despite these headwinds, the company maintains strong historical growth, substantial international expansion potential, particularly in China (24% YoY revenue growth there), and active share buyback programs, suggesting a compelling investment at its current discounted price.

Analysis

Lululemon (LULU) is currently facing a significant valuation-versus-growth conflict. The stock has experienced a severe drawdown of nearly 70% from its all-time highs in 2025, driven by a material deceleration in its core North American market where revenue grew just 1% year-over-year in the last quarter. This slowdown, coupled with the cyclical risks inherent in the apparel sector and potential margin pressure from 2025 tariffs, has fueled investor concern. However, this price collapse has brought the company's valuation to a decade low, with an enterprise value-to-operating income (EV/EBIT) ratio of 7.75, a stark contrast to its historical trading range of 30 to 60. Offsetting the domestic weakness is a robust international growth story, highlighted by 24% year-over-year revenue growth in Mainland China, which now constitutes 16% of total revenue. Further expansion potential exists as markets outside of North America and China account for only 15% of the business. This growth is complemented by an aggressive capital return policy, with management accelerating share buybacks, reducing shares outstanding by 15% over the last 10 years, an action that is highly accretive at the current depressed valuation.

Key Decisions for Investors

• Given the stock's historically low EV/EBIT ratio of 7.75 and active share repurchase program, investors may consider the current price an attractive entry point for a long-term position, assuming a tolerance for near-term volatility.
• Investors should closely monitor revenue growth figures from North America in subsequent quarters, as a stabilization or re-acceleration in this key market would be a primary catalyst for a positive re-rating.
• The performance of the international segment, particularly the sustained high growth in China (24% YoY) and expansion into Europe and Latin America, must be tracked as the key offset to domestic headwinds.
• It is crucial to watch for any management guidance on the impact of tariffs on 2025 profit margins, as this represents a significant near-term risk to earnings.