This Well-Known Consumer Brand Was Once a Monster Stock. With Shares Down 52%, Is It a Once-in-a-Decade Buying Opportunity Right Now?

During the five years leading up to their all-time high in December 2023, shares of this well-known, consumer-facing enterprise were up an astonishing 321%. That gain easily crushed what the broader S&P 500 produced during the same time.

Slower growth, however, is scaring investors. This growth stock now trades 52% below its record. Maybe it's time to take a closer look. Is this company providing a once-in-a-decade buying opportunity right now?

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Facing macro challenges

In fiscal 2021, Lululemon (NASDAQ: LULU) reported fantastic year-over-year revenue growth of 42.1%. Fast-forward three years, and that growth rate fell to 10.1% for fiscal 2024 (ended Feb. 2). To be fair, it's not reasonable to expect the type of expansion from 2021 to continue indefinitely. This is particularly true in light of the pandemic's impact on the retail sector over the past few years when online shopping was extremely popular.

These days, macroeconomic forces are hard to ignore. Consumer confidence has been declining sharply this year. The Federal Reserve is in no rush to cut interest rates to help boost lending activity. And the ongoing uncertainty surrounding tariffs has created a situation in which no one really knows how things are going to play out.

It's not encouraging that Lululemon sources 40% of its merchandise from Vietnam. President Trump implemented a new 46% tariff on goods from this Asian nation, only to pause the tariff amid negotiations. This uncertainty puts executives in a tough spot.

As things stand today, it's difficult for anyone to be optimistic about the near-term prospects for Lululemon. Even management is adopting a cautious tone. "Consumers are spending less due to increased concerns about inflation and the economy," CEO Calvin McDonald said on the fourth-quarter 2024 earnings call about a survey the business recently conducted.

Focus on the positives

Lululemon might be losing the trust of the investment community. However, there are still reasons to remain positive about the business.

The company has developed a strong brand that's positioned at the premium end of the apparel industry. High-quality merchandise sold without a dependence on third-party retailers helps drive better visibility with consumers. The brand is a competitive advantage that Lululemon possesses.

Lululemon's profitability is impressive. Again, the brand's high-end status supports pricing power that has benefited the company's bottom line. Lululemon's gross margin and operating margin have averaged 57.3% and 21.8%, respectively, in the past five years. This is outstanding bottom-line performance.

The growth is slowing, but Lululemon is still expanding at a healthy clip. For the current fiscal year, the leadership team expects revenue to increase between 5% and 7%. That's not close to the double-digit gains investors might be used to seeing, but it's much better than the double-digit decline that industry heavyweight Nike is forecasting for its current fiscal quarter.

Valuation and competition

On the one hand, it can seem like a mistake to invest in an apparel and footwear company that's exhibiting slower growth and makes a lot of its products in a country that is currently negotiating tariffs. That adds a lot of uncertainty that investors might not be comfortable with.

On the other hand, the current valuation might fully reflect the new reality. The stock is much cheaper than the S&P 500, trading at a price-to-earnings (P/E) ratio of 16.9 at the time of this writing (April 8). The valuation has never been cheaper in the past decade, underscoring the market's extreme pessimism toward Lululemon.

I believe Lululemon shares deserve a closer look from investors willing to accept more risk, as there is sizable upside over the next five years. However, I'm not ready to say this is a once-in-a-decade buying opportunity.

Should you invest $1,000 in Lululemon Athletica Inc. right now?

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Neil Patel and his clients have 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.