Lululemon Athletica Inc. (LULU)

Conclusion

Lululemon Athletica Inc. designs, distributes and retails technical athletic apparel, footwear and accessories for women and men under its own brand, selling through company-operated stores, outlets, its e-commerce website and other channels. The share price was 112.53 USD on 2026-11-09, giving a market capitalisation of 11.88 billion USD.

The verdict is undervalued. Today's multiples sit far below their own ten-year medians: the P/E is 8.4x against a median of 41.0x, and the EV/EBITDA is 4.9x against 21.0x. The DCF gives 445.66 USD per share at a discount rate of 9.1%, and the fair value from historical multiples is 551.21 USD. The fair value band runs from 398.75 to 598.12 USD with a midpoint of 498.44 USD, a margin of safety of 342.9% at the current price. The reverse DCF implies growth of -4.3% a year, against revenue growth of 20.3% a year over five years and free cash flow per share growth of 12.0% over the same period.

What holds the case up is cash generation: free cash flow conversion of 95.5% over the last twelve months, ROIC of 25.7% against a WACC of 8.45%, and net debt to EBITDA of 0.29x. What would break it is the outlook. The next-year EPS estimate implies growth of -8.9%, with 20 downward revisions in the last 30 days, and operating margin of 17.8% sits below its ten-year median of 19.3%.

Financial health

Financial strength is green, held up by an Altman Z-score of 5.05, net debt to EBITDA of 0.29x and a current ratio of 2.19. The quick ratio is 0.87x and debt to equity is 0.45x as of 2026-07-31. Interest coverage is not available because the company does not report its interest expense. The Altman Z-score of 5.05 falls in the safe zone, but that model was designed for manufacturers and this company is a retailer, so the reading is indicative only. Insolvency risk: low, about 0.09% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 95.5% over the last twelve months and an accrual ratio of -0.29%. The company beat earnings expectations in all 8 recent quarters, with an average surprise of 7.1%. Conversion over five years is 80.8%, which is rated neutral. Stock-based compensation is 0.82% of revenue, and free cash flow after it is 1.26 billion USD. The share count fell 1.87% a year over five years, consistent with buybacks. The Piotroski score is 5 out of the 8 tests that could be evaluated. The Beneish M-score is not available. Estimate revisions point down: the current year is revised down 13.3% over 90 days and the next year down 25.0%.

Profitability

Profitability is green, led by ROIC of 25.7% against a WACC of 8.45%, giving an ROIC minus WACC value of 17.26%. Gross margin is 56.1% against a ten-year median of 55.7%. Operating margin is 17.8% against a median of 19.3%, which is rated neutral, and net margin is 12.8% against 14.5%. Operating margin stability is 11.7%. ROIC was much higher in the past, with a five-year median of 45.9%. Return on equity is 29.6%. The DuPont split, as of 2026-01-31, shows a net margin of 14.2%, an asset turnover of 1.31x and an equity multiplier of 1.70x. Because the multiplier is modest, most of the return comes from margins and asset turnover rather than leverage.

Growth

Growth is yellow: the long-run record is strong, but the near-term outlook is negative. Revenue compound growth is 11.0% over three years, 20.3% over five and 18.3% over ten. EPS compound growth is 25.7% over three years, 24.1% over five and 21.5% over ten. Revenue grew in 10 of 10 comparable years. Free cash flow per share grew 44.6% a year over three years and 12.0% over five. The next-year EPS estimate implies growth of -8.9%, which is rated bad.

Valuation

Valuation is green, and the verdict is undervalued. The P/E is 8.4x against a ten-year median of 41.0x, a premium of -79.6%. EV/EBITDA is 4.9x against 21.0x (-76.6%), P/FCF is 8.8x against 38.2x (-77.1%), P/S is 1.07x against 5.52x (-80.6%) and P/B is 2.48x against 13.31x (-81.4%). The DCF gives 445.66 USD per share at a discount rate of 9.1%, with 61.6% of that value in the terminal value. The fair value from historical multiples is 551.21 USD. The fair value band runs from 398.75 to 598.12 USD, with a midpoint of 498.44 USD and a margin of safety of 342.9% at 112.53 USD. The reverse DCF implies growth of -4.3%, against five-year revenue growth of 20.3% and five-year free cash flow per share growth of 12.0%. The forward dividend yield is 0%. These are estimates built on fixed assumptions, not price targets.

Risks

Each weak number has a clear consequence. The next-year EPS estimate, already implying growth of -8.9% and revised down 25.0% over 90 days, would weaken the case that earnings can recover. Operating margin of 17.8% against a median of 19.3% shows margin pressure; further slippage would reduce the ROIC minus WACC value of 17.26%. The DCF rests on 61.6% terminal value, so its figure depends heavily on long-term assumptions. Interest coverage and the Beneish M-score are not available, and the cost of debt of 6.9% is assumed rather than reported. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and product mix cannot be assessed.