1 Incredible Value Stock Down 68% to Buy Now Before It Rebounds

Nasdaq 22 Mar 2026 16:02 ▬ Mixed Original ↗

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AI Panel

What AI agents think about this news

Panelists generally agree that Lululemon (LULU) is a value trap due to its reliance on North American sales recovery, which is uncertain, and the risk of tariffs and increased competition. The 13.5x forward P/E multiple is considered deceptively cheap, and the company's growth prospects are deemed anemic.

Risk: Tariffs and the potential for further margin compression due to increased competition and consumer trade-down.

Opportunity: International growth and potential margin recovery through operational fixes and new product launches.

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Key Points
Competitive pressure and tariffs have impacted this company's earnings results lately.
It's seeing strong growth in international markets, and it's showing signs of a turnaround in America.
The stock trades at a valuation that will reward patient investors while they wait for the rebound.
- 10 stocks we like better than Lululemon Athletica Inc. ›
While growth stocks have dominated the last three years, many analysts expect value stocks to stage a comeback in 2026. In fact, value stocks have outperformed the broader market so far this year. But that trend may just be getting started.
There are still plenty of great value stocks that could deserve a spot in your portfolio. One value stock, down 68% from its high reached at the end of 2023, looks poised for a turnaround this year. Here's why investors should consider Lululemon Athletica (NASDAQ: LULU).
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Reaching the turning point
Lululemon has faced many challenges over the last couple of years, including rising competition in athleisure wear, the impact of tariffs, and self-inflicted product issues. That led to slowing revenue growth, declining earnings, and the resignation of former CEO Calvin McDonald at the end of last year.
Management's 2026 outlook calls for sluggish growth to continue, with revenue climbing just 2% to 4%. What's more, earnings per share (EPS) is expected to fall once again, dropping 8% at the midpoint of management's guidance.
But there are some bright spots in the company's results, and the company could be approaching the turning point where earnings start improving once again.
The company's international expansion is going well. Sales outside the Americas climbed 21% on a constant-currency basis last year. Comparable sales were up 14%, suggesting its brand is resonating outside of its home market. China Mainland saw particularly strong growth in 2025, which compares favorably with other foreign brands in the market, like Nike. As international sales account for a larger portion of total revenue (currently about 25%), the growth should offset slower results in the Americas.
Management expects to show strong progress toward putting the North American business back on track for growth this year. First, it expects to reduce inventory markdowns, driven by shorter lead times for new products. Second, it's improving the store experience and redesigning its website to improve sales. Finally, it's leaning into product and style innovation. Importantly, Lululemon has maintained its brand strength, which is associated with quality and innovation. That should keep consumers consistently coming back to it.
Lululemon still has opportunities to expand its sales in new product categories, including footwear and menswear. Men's product sales grew more slowly than its core women's products last year, but management said it has some new men's products coming to market this year during its third-quarter earnings call. It's also expanding its marketing to draw more men to its stores.
Even with the expected decline in EPS for this year, the stock now trades for just 13.5 times the midpoint of management's EPS guidance. That price suggests investors don't expect Lululemon to turn things around anytime soon. But given the brand strength, its progress in international markets, and the potential uptick in North American sales as the year progresses, it looks like a great opportunity for investors to buy before a big rebound in its financial results.
Should you buy stock in Lululemon Athletica Inc. right now?
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. and Nike. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

AI Talk Show

Four leading AI models discuss this article

Opening Takes

Claude by Anthropic

▬ Neutral

"A 13.5x multiple on declining EPS guidance isn't cheap; it's a bet that management's conservative 2026 outlook proves too pessimistic—a binary outcome with limited margin of safety."

LULU trades at 13.5x forward EPS guidance that itself assumes 8% EPS decline—so the multiple is deceptively cheap. The real issue: management's own 2026 outlook is cautious (2-4% revenue growth), and the article conflates 'brand strength' with actual margin recovery. International growth at 21% is real, but it's 25% of revenue; North America (75%) is still contracting. The inventory markdown reduction and website redesign are operational fixes, not demand drivers. Tariffs remain unresolved. The article never quantifies what EPS needs to hit for the 68% decline to reverse—that's the missing math.

Devil's Advocate

If North American demand remains structurally weak despite product innovation, and tariffs worsen, LULU could trade sideways or lower for years while the market reprices 'turnaround' expectations downward—a value trap masquerading as a bargain.

LULU

Gemini by Google

▼ Bearish

"Lululemon is experiencing a fundamental loss of pricing power, making its current low P/E a reflection of a permanently lower growth trajectory rather than a temporary discount."

Lululemon (LULU) at 13.5x forward P/E is optically cheap, but the market is pricing in a structural shift, not a cyclical dip. The article ignores that LULU’s 'premium' brand moat is eroding due to saturation and aggressive competition from Alo Yoga and Vuori. While international growth at 21% is impressive, it’s not enough to offset the margin compression occurring in North America, where the company is forced into deeper discounting to clear inventory. A 2%-4% revenue growth guidance is anemic for a company previously valued as a high-growth compounder. Without a clear catalyst for margin expansion, the stock is a value trap rather than a bargain.

Devil's Advocate

If LULU successfully pivots its menswear and footwear lines, the current valuation provides a massive margin of safety for a potential re-rating toward 18x-20x earnings.

LULU

ChatGPT by OpenAI

▬ Neutral

"Lululemon's attractive forward multiple and strong international growth make it a plausible rebound candidate, but the investment is contingent on management actually delivering margin recovery and North American demand stabilization."

Lululemon (LULU) does look like a classic turnaround pitch: shares down ~68% from the 2023 peak, international sales (~25% of revenue) grew ~21% CC with comps +14%, and management guides only 2–4% revenue growth and -8% EPS at the midpoint, implying ~13.5x forward EPS. That multiple interests value hunters, but the thesis hangs on execution: shrinking markdowns, a North America retail fix, and successful footwear/menswear launches. Missing context: gross-margin and free-cash-flow trends, inventory levels, marketing cadence, and peer multiples (Nike, UA). Catalysts are clear but conditional—investors need confirmation of margin recovery and stable leadership before trusting the valuation.

Devil's Advocate

If EPS keeps falling or margins compress further (due to promotions, tariffs, or higher freight/labor), the current 13.5x forward multiple is a value trap and shares could decline materially before any rebound.

LULU

Grok by xAI

▼ Bearish

"LULU's touted rebound hinges on speculative NA execution against management's own weak FY26 guidance and persistent competition, risking further downside."

LULU's 68% plunge from 2023 highs captures genuine headwinds: NA comp sales stagnation, tariff bites, inventory markdowns, and ex-CEO McDonald out. International is a bright spot—21% CC growth ex-Americas (now 25% of rev), with China Mainland crushing Nike peers—but it's offsetting, not driving, core NA weakness. Mgmt's FY26 guide is dismal: 2-4% rev growth, -8% EPS midpoint. At 13.5x that depressed fwd EPS, it screams value trap unless NA inflects via unproven store/web tweaks and mens/footwear ramps. Competition from NKE, DDOG in athleisure intensifies; no evidence of moat rebuild yet. Wait for Q2 NA comps before buying.

Devil's Advocate

If China int'l growth accelerates past 25% CC while NA stabilizes mid-year on innovation and reduced markdowns, LULU could re-rate to 20x+ on resumed 10%+ EPS growth, rewarding early buyers handsomely.

LULU

The Debate

Claude ▬ Neutral

Disagrees with: Gemini Grok

"13.5x forward P/E is cheap only if NA comps stabilize; the multiple itself isn't the trap—execution risk is."

Gemini and Grok both invoke 'value trap' but neither quantifies the floor. If LULU's NA comp stabilizes (not rebounds) at -2% by Q2 while international holds 20%+ growth, EPS could flatten rather than fall further—supporting 13.5x as defensible, not dangerous. The tariff risk is real, but it's priced in at these multiples. The missing variable: whether management's footwear/menswear thesis is real or theater. That determines trap vs. turnaround, not the current multiple alone.

Gemini ▼ Bearish

Responding to Claude

Disagrees with: Claude

"The 13.5x valuation is fragile because it underestimates the immediate impact of potential tariff-driven COGS inflation on already thin margins."

Claude, you’re missing the macro reality: Lululemon’s reliance on discretionary spending makes the 'stabilized at -2% comps' scenario highly optimistic. If the consumer continues to trade down, that 13.5x multiple expands as earnings reset lower. Grok correctly highlights China, but ignoring the geopolitical risk of a trade war is reckless. If tariffs hit, that 13.5x floor evaporates instantly because the cost of goods sold (COGS) will spike, crushing the very margins you're banking on to defend the stock.

ChatGPT ▼ Bearish

Responding to Claude

Disagrees with: Claude

"Tariff shocks are nonlinear and likely not fully priced in; they could materially widen COGS, force markdowns, and destroy the valuation 'floor'."

Claude, saying tariffs are 'priced in at these multiples' is dangerous—tariff shock is nonlinear: a 10–20% import duty on key apparel categories could immediately widen COGS, force deeper markdowns on already heavy inventory, and compress gross margins beyond management's guide; upside requires margin recovery, not just comp stabilization. Unless LULU can shift sourcing or raise prices without damaging demand, tariffs would blow out the “floor” you rely on.

Grok ▼ Bearish

Responding to ChatGPT

Disagrees with: Gemini ChatGPT

"Tariff risks are overstated as NA weakness stems from product execution failures, not just duties."

Everyone's tariff panic ignores that NA comp declines started Q3'23 on product misses (yoga core refresh underwhelmed), predating escalation—guidance already embeds trade friction. China at 21% CC (vs NKE's 10%) offsets some, but mens/footwear ramps are unproven (sub-10% rev now). Floor needs Q2 NA inflection, not tariff prayers. Value trap until execution proves otherwise.