Lululemon Athletica (LULU -0.48%) has been a fabulous stock to own over the past five years, outperforming the broader market by sevenfold.

LULU Chart

LULU data by YCharts

However, despite Lululemon's continuing solid performance since recovering from the pandemic, investors were disappointed with 2022 fourth-quarter guidance and sent Lululemon stock down 18% since the third-quarter earnings report.

Is that short-sighted? And did that hastiness just send you a fabulous opportunity to buy Lululemon's shares on the cheap, or is this a sign of further decline?

Let's assess Lululemon stock from three vantage points.

1. Revenue is still steadily building

LULU Revenue (Quarterly) Chart

LULU Revenue (Quarterly) data by YCharts

Lululemon has posted strong and steady revenue growth for many years, save for a short dip at the beginning of the pandemic. It just did it again, with a 28% year-over-year revenue increase in the 2022 third quarter (ended Oct. 30).

It exceeded its targets to double revenue through doubling men's and digital sales and quadrupling international sales, what it called the "power of three" program, early.

Now it's working on the same goals, with a new "power of three x2" program, to repeat by 2026. It plans to make that happen by focusing on its key pillars of product innovation, customer experience, and expanding its market.

2. Excellent profit generation

It's not only revenue that's growing. Lululemon has done an excellent job turning revenue into profits, which have been consistently growing as well. Earnings per share (EPS) increased from $1.44 last year to $2 this year in the third quarter.

More than that, it has a better net income margin than other companies with a similar model, almost to an extreme. That means it's turning more of its sales into profits, consistently. Compare it with industry leader Nike, as well as Gap and American Eagle Outfitters

LULU Profit Margin Chart

LULU Profit Margin data by YCharts

It's been able to accomplish this through a mix of charging higher prices for its premium products and a very high direct-to-consumer sales rate. That increased from 40% last year to 41% this year.

3. A compelling entry point

Because Lululemon stock fell after the third-quarter report and is now down 22% this year, its stock is trading at its cheapest valuation in years outside of the 2020 crash.

LULU PE Ratio Chart

LULU PE Ratio data by YCharts

Management guided for $2.63 billion in fourth-quarter sales at the midpoint, representing a 25% increase over last year, and EPS of $4.25 at the midpoint versus $3.36 last year. Wall Street is expecting $2.7 billion in revenue and $4.29 in EPS.

Those would still be impressive increases, and Lululemon has met or beaten Wall Street's expectations for the past four quarters.

More than that, investors shouldn't put too much weight on one quarter, let alone one quarter's guidance. Rather, look for patterns. 

Considering Lululemon's performance, growth strategy, and cheap price, it looks like a compelling buying opportunity.