Shareholders of Lululemon would probably like to forget the past six months even happened. The stock dropped 30.7% and now trades at $181.46. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Given the weaker price action, is now a good time to buy LULU? Find out in our full research report, it’s free for active Edge members.
Why Is LULU a Good Business?
Originally serving yogis and hockey players, Lululemon (NASDAQ:LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Lululemon has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 5.3%.
2. Elite Gross Margin Powers Best-In-Class Business Model
Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.
Lululemon has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 58.8% gross margin over the last two years. That means Lululemon only paid its suppliers $41.17 for every $100 in revenue. 
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Lululemon has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 13.7% over the last two years.
Final Judgment
These are just a few reasons why we're bullish on Lululemon. After the recent drawdown, the stock trades at 14.8× forward P/E (or $181.46 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More Than Lululemon
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.