The tech-driven bull market has driven up valuations for tech stocks, but this could present long-term investors attractive buying opportunities for top stocks in the consumer goods space.
Lululemon Athletica (LULU -1.46%) and Cava Group (CAVA -0.85%) are trading 60% off their previous highs, but analysts on Wall Street see value. The average price target for these stocks is at least 33% above where they currently trade.
Here's why they are down and might be worth buying ahead of a potential rebound in 2026.
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1. Lululemon Athletica
Lululemon Athletica has been a growing brand in the athletic wear market for two decades, but the company is struggling with slowing sales growth and higher costs from tariffs. The stock trades well below its 52-week high of $423.
After three years of higher grocery prices and mortgage rates, consumers are pulling back on discretionary spending. This is not specific to Lululemon, but a lot of consumer brands are taking a hit. Starbucks and Nike have experienced sales pressure over the last year. After growing revenues by double-digit rates a year ago, the headwinds have finally caught up to Lululemon with sales up just 7% year over year in the most recent quarter.
Tariffs have compounded the company's challenges, yet despite this, the company expects revenue growth to remain stable next quarter, rising between 7% to 8% year over year. It also expects full-year earnings per share to come in between $14.58 to $14.78.
Apparel is highly competitive, yet that hasn't prevented Lululemon from building a strong brand over the last 20 years. It's one of the most profitable apparel brands, generating $1.8 billion in profit on $10.8 billion of revenue over the last year, which is an above-average margin of 17%.
Analysts on Wall Street have an average price target of $273 on the shares, representing upside of 33%. The stock does appear undervalued at these levels. Using management's full-year guidance, the shares trade at 14 times forward earnings. This is the lowest valuation the stock has traded in years. Just two years ago, investors were paying around 30 times earnings to own a piece of Lululemon's future growth.
Obviously, sentiment around the consumer goods space will dictate when the stock rebounds. But there is a catalyst that may be coming in the form of interest rate cuts by the Federal Reserve that could provide some relief for consumers and potentially put Lululemon and other discounted retail stocks on a path of recovery over the next year or so.
Image source: Cava.
2. Cava Group
Cava stock rocketed to a high of $172 last year before falling to its current $68 share price. A combination of an extremely high valuation on the stock entering 2025 combined with weak consumer spending trends magnified the stock's recent slide.
Cava is capturing a big opportunity. It is meeting demand for a Mediterranean-based restaurant concept in the fast-casual market. It is still growing at robust rates, with total revenue up 20% year over year in the most recent quarter. But slowing customer traffic, where same-restaurant sales growth slowed to 2.1% year over year, has sent the stock lower.
However, one silver lining in the recent quarterly financial report suggests sales growth could already be in the process of picking up again. Management indicated that same-restaurant sales were reaccelerating toward the end of the last quarter and beginning of the current quarter.
Cava is still investing in a huge market for Mediterranean food. It opened a net 16 new restaurants last quarter. Management still sees room for 1,000 restaurants by 2032, which would more than double its locations from the current 398.
The stock could be bottoming out, as analysts' average price target is currently $92, implying upside of 36%. The stock looks expensive at a forward P/E topping 120 at the time of writing. This is based on the Wall Street consensus earnings estimate of $0.56 for this year. But Cava is a highly profitable restaurant business. As it continues to open new locations and achieve greater scale, analysts expect Cava's earnings to nearly triple over the next four years to $1.57.
From a price-to-sales (P/S) valuation perspective, Cava is more reasonably priced. The stock traded around 15 times sales at the start of the year but now trades at a 7.5x multiple. That's still a rich valuation for a restaurant stock, but it's justified considering Cava is still in the early innings of its nationwide expansion and is already producing a healthy profit for a restaurant business.
The lower valuation and continued execution toward its long-term strategy raise the odds of a rebound next year. If the stock continues to trade at the current P/S multiple and meets next year's consensus revenue estimate for $1.4 billion, the stock would rise 36%.
