Lululemon (LULU -0.08%) has not given investors much hope in the past couple of years. The athleisure pioneer's share price has tanked 66% since hitting a peak in December 2023. The market continues to be bearish, especially as revenue growth has slowed.
It's important for long-term investors to remain optimistic, though, as the future could be bright. Here's one reason to be very, very excited about Lululemon stock right now.
Image source: Lululemon.
Low market expectations add tremendous upside
Lululemon shares have gotten so beaten down that the current valuation is hard to believe. The stock trades at a bargain valuation of under 12 times trailing-12-month earnings per share. This is less than half the multiple of the overall S&P 500 index, showcasing how much the investment community has soured on the company.
Should the stock eventually get on par with the broad index's valuation, investors could see more than 100% upside.
Lululemon is a quality business
Despite what the valuation implies, Lululemon is a solid business. In the past six years, its revenue and net income have climbed 183% and 197%, respectively. The company is clearly a premium brand, reporting an outstanding gross margin of 58.5% in the second quarter (ended Aug. 3). And the company has a pristine balance sheet with no debt, reducing financial risk.
Competitive factors and macro headwinds will pressure near-term results. However, patient investors should consider buying this stock.
