Summary
- Lululemon stocks are undervalued by 29.3%, trading below fair market price, despite strong profitability and free cash flow generation.
- Revenue growth slowed due to macroeconomic headwinds and competition, but Lululemon remains a market leader in women’s athleisure apparel.
- Investing in Lululemon at current prices offers a positive alpha of 1.8%, making it an attractive investment opportunity with an implied return of 10%.
Executive Summary
Lululemon (NASDAQ:LULU) stocks are currently trading below their fair market price.
Since the beginning of the year, Lululemon has been the fourth worst performer among the S&P 500 constituents, with stock prices decreasing (48.64%).
Stock declines are due to depressed revenue growth rates registered in the first two quarters of 2024, along with a very cautious FY 2025 guidance, with management expecting revenue to grow in the high single-digit to the low double-digit range, due to macroeconomic headwinds and increasing competition.
However, despite the poor growth expectations and the rising threat of competitors, thanks to its incredible profitability levels and free cash flow generation, at such depressed prices, our assumptions suggest that Lululemon’s risk-reward profile has the potential to represent an interesting investment opportunity.
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