LULU Stock To Less Than $100?

How would you react if you held Lululemon stock (NASDAQ:LULU) and its value fell by 90% or more in the upcoming months? Although this might seem extreme, such an occurrence has happened before and could repeat itself. In the current year, the stock has so far lost over 30% of its value – including the single-day correction of over 14% after the company published its fiscal 2024 annual results and the more recent 10% drop after Trump’s tariff announcement. And when one considers past data on how the stock performs during an economic downturn, a correction to less than $100 from near $260 at present may not be too far-fetched.

Interestingly, the recent performance of the stock is actually counterintuitive to its financial results. LULU’s fourth-quarter earnings per share of $6.14 as well as revenue of $3.61 billion comfortably beat the market estimates of $5.85 and $3.57 billion respectively. However, investors are spooked by macro fears stemming from a slowdown in consumer spending as well as geopolitical tensions, and the management’s muted guidance of sales over the next twelve months or so.

Here’s the key point: The key takeaway is that during a downturn, LULU stock might incur substantial losses. The stock lost 36% during the inflation shock and ~47% during the Covid crisis. But the biggest of them all is that during the financial crisis of 2009, the stock lost more than 90% from its peak. That’s not a mistake. Markets can be ridiculous in the face of macro fears. Is there any similarity between the company’s current fundamental position and that of the company during the financial crisis?

In March 2009, LULU reported earnings with $45 million in cash flows, and the stock was trading at about 12 times the operating cash flow! An 8% yield. Lulu’s operating cash flow in the last twelve months was  $2.27 billion – indicating a yield of 7% on a market cap of $31 billion. So what? Given the higher valuation multiple, could the stock witness a similar meltdown? Maybe not as severe – with over a decade and a half of business and investor confidence, the company would be in a much better position compared to 2009. However, concerns would remain. Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High-Quality portfolio, which has outperformed the S&P 500 and generated returns of over 91% since its inception.

Here are a few key pointers on how resilient is LULU stock during an economic downturn: