Down 50% from high, is Lululemon stock a good buy right now?

Lululemon Athletica (LULU 0.46%) is a recognized and iconic name in the fashion industry. Known for its high-quality activewear, consumers are often willing to pay a premium for its products. But Lululemon isn’t immune to tough macroeconomic conditions, and investors have dumped the stock as its growth rate has slowed significantly in 2024. But now, with the stock down 50% from its peak, is it too cheap to pass up?

Lululemon’s sales numbers are weak in Q2

On August 29, Lululemon reported its second quarter earnings for the period ended July 28. The company grew revenue 7% to $2.4 billion for the period, but was slightly below analysts’ expectations. The company, however, delivered a solid beat on the bottom line, with earnings per share of $3.15 coming in well ahead of the $2.93 that Wall Street wanted.

What’s worrying, though, is that the company is seeing softness in its core markets of the Americas, where comparable sales fell 3% year-on-year. CEO Calvin McDonald said a lack of new and attractive styles for women had led to weak demand in his US business. Sales growth in China was strong, with revenue up 34%. But with China’s economy showing signs of slowing, Lululemon may not be able to count on such high numbers for much longer.

And the problem of slowing growth is by no means an isolated problem for Lululemon.

LULU revenue data (quarterly annual growth) by YCharts

Low guidance and a troubling outlook only add to the bear case

Not only was the current quarter a bit underwhelming, but Lululemon also lowered its guidance for the full fiscal year (which ends in January). Revenue is expected to be around $10.4 billion (previously the forecast was at least $10.7 billion), while earnings per share will also be lower at an average point of around 14 $.05 — down from $14.37.

These are not necessarily significant adjustments, but the risk for investors is that these numbers could worsen if economic conditions deteriorate; demand for Lululemon’s high-priced apparel could slow further if consumers feel more of a need to cut back on spending amid a recession.

Lululemon stock is trading at a steep discount

Lululemon shares have lost more than half their value and are nowhere near their 52-week high of $516.39. What may be attractive to investors is the fairly easy valuation of the stock; it trades at less than 20 times earnings. It is well below the five-year average.

LULU PE report data by YCharts

On the other hand, the business is also growing at a much slower pace than in the past. Typically, investors pay a premium for a stock when it performs well. A discount is arguably warranted in light of Lululemon’s recent results and the headwinds the business is facing.

Should You Buy Lululemon Stock Today?

For a top apparel stock with a notable brand name, Lululemon could be attractive to investors who are willing to take a contrarian position on the company. The last time stocks traded much lower than they are today was in 2020.

The company is still posting strong profits, and while it may face some challenges, it’s in the same boat as other high-priced apparel companies. There’s no reason to suggest the brand is in trouble, and as economic conditions improve, the company could return to generating stronger sales figures. For investors willing to be patient and hold out for at least a few years, buying the stock right now while it’s on discount could set you up for some great returns down the road.