lululemon athletica inc. (NASDAQ:LULU) closed at $94.46 on October 2, down 45.75% over twelve months. The shares now cost less than nine times what the company earned last year. That is a department store multiple attached to a brand that spent a decade commanding a premium.
Two groups are looking at the same numbers and reaching opposite conclusions, which is what makes this one worth examining.
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The Business Still Earns Well:
Start with what has not broken. Lululemon still earns 30.90% on equity. That is the figure that separates a brand in decline from a brand in trouble, and very few retailers of any kind reach it.
The 13.21% operating margin says the same thing. Nobody is discounting their way out of this yet. Cash generation holds up too. Operating cash flow was $1.98 billion against reported net income of $1.42 billion, so the earnings are arriving as cash rather than as accounting entries.
Levered free cash flow of $1.15 billion is lower than the reported profit, which is the cost of opening and fitting out stores.
The balance sheet is manageable, with $2.14 billion of debt against $1.39 billion of cash.
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What the Short Sellers Have Noticed:
Now the case against, which is not about this year’s profit. Revenue fell 4.30% in the most recent quarter, and earnings fell 11.20%. For a company whose entire valuation rested on growth, a shrinking top line changes the question being asked.
The multiples carry the warning. Lululemon trades at 8.54 times trailing earnings and 10.74 times forward estimates. A forward multiple above the trailing one is the market saying earnings will be lower next year than last. The stock is not cheap on what it will earn, only on what it did earn.
Short sellers have taken this further than most. Some 13.07% of the float is sold short, which is a large position against a profitable company with a strong balance sheet.
The structural worry is that athletic apparel has very low barriers. A brand that loses its cultural position has nothing underneath it, because anyone can make the product. There is a consumer brand growing rather than shrinking at a similar multiple. You can find it here.
The Valuation Case:
The margins and the return on equity say the brand still has pricing power, and the falling revenue says fewer people are paying it. Those two facts can coexist for a while and not indefinitely.
On price, almost nothing is demanding. Enterprise value to EBITDA of 4.86 times is roughly what the market pays for a business it expects to be smaller in five years.
The company pays no dividend, so an investor earns nothing while waiting for the question to resolve. We ranked this year’s best performing dividend payers here.
Conclusion:
The numbers say this is a good business at a low price. A 30.90% return on equity, operating cash flow well ahead of reported profit, and 4.86 times enterprise value to EBITDA are not the markers of a broken company. However, revenue is falling and the forward multiple sits above the trailing one. Some 13.07% of the float is positioned for it to get worse. The number to watch is revenue, because at this multiple nothing else is in question.
Market Sentiment:
lululemon athletica inc. (NASDAQ:LULU) was held by 51 hedge funds with a combined stake value of about $0.61 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 61 hedge fund holders with a cumulative investment value of around $1.14 billion in the previous quarter.
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This article is originally published at Insider Monkey.
