Is Lululemon Athletica a Buy Now That It Has Declined Recently?

Lululemon’s recent financial results disappointed Wall Street and the company has hit some bumps in the road in the past year, but with the declines in its stock price, it now may be time to buy.

Jul 3, 2014 at 7:00AM

Lululemon Athletica (NASDAQ:LULU) has experienced a couple of setbacks during the past year, with its financial results for the first quarter of 2014 disappointing Wall Street being the most recent setback. The company's earnings declined by a significant margin of 59%, from $0.32 in 2013's first quarter to $0.13 in 2014's. As a result, Lululemon's stock took a dive on the day it reported its earnings and dropped by about 16%. Year to date, Lululemon's stock has been on a steady decline, falling close to 32% in 2014.

LULU Chart

LULU data by YCharts

With Lululemon's stock declining significantly, is now the time to buy? If you believe that risk is more related to the price you pay for stocks than to their historical volatility, then Lululemon might be a good investment at this point.

Lululemon and its competition
Lululemon competes against a number of companies in the athletic clothing market. Some of its major competitors include Nike (NYSE:NKE), The Gap (NYSE:GPS), and Adidas (NASDAQOTH:ADDYY). The following table compares the current valuations of Lululemon and the aforementioned companies.



Forward P/E

5-yr. PEG












The Gap










Data Source: Yahoo Finance & Morningstar

Even with significant declines in 2014, Lululemon does not stand out on a valuation basis against its peers given the valuation metrics explored here. The Gap looks the most attractively valued looking back not only at earnings over the last 12 months but also at cash flow over the last 12 months, with a P/E and P/CF of 16 and 10, respectively.

Adidas, however, "takes the crown" looking at projected earnings over the next 12 months and over the next five years with a forward P/E of 7 and a 5-yr. PEG of 0.6. Stocks with 5-year PEG ratios less than one are considered undervalued and Adidas certainly fits that bill, with The Gap more or less fairly valued considering that criterion. Nike looks overvalued and so does Lululemon, but less so than Nike considering their PEG ratios; nonetheless, neither company looks overly attractive given their 5-year PEG values.

Not attractively valued, but not on a death spiral either
Wall Street did not like Lululemon's 2014 first-quarter results, but the overall financials were not bad at all. The steep decline in earnings was mostly a result of the company repatriating money from overseas, leading to a hefty tax charge in the quarter. Lululemon's earnings before taxes actually increased in the quarter by 6% to $71.44 million from $67.39 million in 2013's first quarter. Excluding the one-time tax charge, Lululemon's earnings actually increased by $0.02 to $0.34 from $0.32 in 2013's first quarter. Moreover, the company's revenue rose by 11% to $384.6 million from $345.8 million in the first quarter of 2013.

Foolish takeaway
Lululemon's recent results are not a harbinger of more misfortune for the company or its stock ahead. Although the company is not rapidly expanding as it had done in the past, it is to be expected as more competitors enter the market for women's athletic clothing and as Lululemon matures and has less room to expand in the U.S.

The stock is not a screaming buy, but it is not a screaming sell either. Given its performance when one digs deeper down into the financials, Lululemon is definitely a better buy now than it was before its most recent decline. At its current price, investors should not get hurt initiating an investment in Lululemon.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers