Nike (NKE) vs Lululemon (LULU): Which is a Better Stock to Buy?

NIKE, Inc. (NYSE:NKE) reported first-quarter revenue of $11.21 billion on October 1, down 4%, and guided full-year revenue to fall by a high single-digit percentage.

lululemon athletica inc. (NASDAQ:LULU) closed at $95.86 the same day, each having lost close to half its value over twelve months.

READ ALSO: Nike (NKE): Wall Street Tests Whether the Turnaround Can Outrun Weak Demand Ahead of Q1 Results

Lululemon Earns Twice as Much on Every Dollar it Sells:

The profitability gap between these two is wider than their reputations suggest. Lululemon converts 12.78% of revenue into net profit. Nike manages 6.70%, less than half as much, despite selling four times the volume.

Return on equity tells the same story. Lululemon returns 30.90% against Nike’s 22.14%, and it does so with a far smaller balance sheet. Scale has not delivered for Nike here. The far bigger company should out-earn the smaller one on margin, and the opposite is happening.

Nike’s quarter did contain real progress. Earnings came in at $0.48 a share against the $0.43 analysts expected, and gross margin also came in ahead of forecast.

The guidance is what broke the stock. Management expects revenue to fall by a high single-digit percentage across fiscal 2027, which is a much steeper decline than the 4% just reported.

Lululemon is shrinking too, and more slowly. Revenue fell 4.30% last quarter, and the company has cut full-year guidance twice this year with a new chief executive still settling in.

DON’T MISS: Lululemon (LULU) Cuts its Outlook Again Just as a New CEO Walks through the Door

Nike Appears to Pay You to Wait, and the Cash Does Not Cover It:

Nike’s case rests on being paid while the turnaround happens. The forward dividend of $1.64 a share yields about 4.7% against the October 1 close of $35.15.

That yield does not look safe. With about 1.48 billion shares outstanding across both classes, the dividend costs roughly $2.4 billion a year, against $1.89 billion of free cash flow over the past twelve months.

A payout already exceeding free cash flow now faces a year of high single-digit revenue decline. Nike holds $9.03 billion of cash against $11.04 billion of debt, so it can fund the gap for a while rather than indefinitely.

Lululemon pays nothing and generates $1.15 billion of free cash flow on a company worth about $11.4 billion. Nothing is promised, and nothing is strained.

Short sellers have picked a side. They hold 13.07% of Lululemon’s free float and 8.98% of Nike’s, so the conviction against the cheaper stock is higher.

Both were at the bottom of their twelve-month ranges when the market closed on October 1, and both have fallen further since.

The Valuation Case:

There is no growth at either company to sustain. Nike guided fiscal 2027 revenue down by a high single-digit percentage on October 1, and Lululemon has cut its outlook twice this year.

That makes both multiples misleading. Nike trades at about 17 times trailing earnings at the October 1 close, and any forward multiple rests on forecasts made before the guidance cut. Lululemon trades near 10.7 times forward against roughly 19 times for the S&P 500.

Neither clears the risk-free bar cleanly. Lululemon’s 9.3% earnings yield only counts if earnings stop falling, and Nike’s rests on estimates the company has just told analysts to lower. The ten-year Treasury paid 5.24% on October 1 with no such doubt attached.

Nike seems like a hard buy here. Lululemon becomes interesting once a quarter stops the decline, because 10.7 times earnings on a 30.90% return on equity would then be cheap.

Conclusion:

Lululemon is the better of the two. It earns a 12.78% net margin and a 30.90% return on equity, and it is shrinking more slowly than Nike, in addition to carrying no dividend that the cash flow cannot support. However, neither is cheap in the way a low multiple suggests. A price-to-earnings ratio only means something when the earnings are stable, and both companies are guiding them down. Nike is the clearer avoid, because it has just told investors to expect a high single-digit revenue decline while paying out more than it earns in cash.

Market Sentiment:

NIKE, Inc. was held by 56 hedge funds with a combined stake value of about $1.35 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 71 hedge fund holders with a cumulative investment value of around $1.31 billion in the previous quarter.

lululemon athletica inc. (NASDAQ:LULU) was held by 51 hedge funds with a combined stake value of about $610 million at the end of the same quarter. This is down from 61 hedge fund holders with a cumulative investment value of around $1.14 billion three months earlier.

While we acknowledge the risk and potential of NKE and LULU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NKE and LULU and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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This article is originally published at Insider Monkey.