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Further Reading from MarketBeat
Lululemon’s China Backlash May Be Hiding a Bigger Valuation StoryReported by Sam Quirke. Published: 6/22/2026. 
Key Points
- A high-profile promotional gaffe on the Great Wall of China has piled fresh pressure on Lululemon, with the stock now trading near multi-year lows.
- Beneath the noise, however, the company continues to top earnings expectations and is trading at one of its cheapest valuations in over a decade.
- For investors with a long enough time horizon, the latest dip in sentiment may be remembered as the kind of opportunity that doesn't come around often.
- Special Report: Forget SpaceX. Buy the company Musk can't replace.
It's not often that a yoga festival becomes a stock market story, but that's exactly what's happening to Lululemon Athletica Inc (NASDAQ: LULU) right now. The activewear giant staged a large-scale promotional event on a section of the Great Wall of China near Beijing in late May, complete with thousands of attendees, Chinese celebrities, and what was intended to be a traditional drum performance. The problem is that the drum used reportedly wasn't Chinese at all. It was Japanese, and Chinese social media has not been gentle about it. The backlash on the Chinese social media platform Weibo has been substantial, with related discussion topping tens of millions of views, and the company has been forced to issue an apology. Considering that China has been one of Lululemon's most important growth markets over the past few years, this is the absolute last thing the stock needed. The shares were already deep in the doghouse, and a public misstep like this only deepens the sense that everything that could go wrong for Lululemon is going wrong.
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However, for those who can step back and look at the bigger picture, this may be exactly the kind of moment that long-term bulls will later view with a wry smile. A Stock That's Been Badly Beaten UpThis latest gaffe in China didn't cause the selloff in Lululemon, but it has added to a decline that's been quietly grinding away since late 2023. Shares are down close to 50% year to date, hit a fresh low earlier this month, and are trading at roughly the same level as they were eight years ago. For a brand that was, not so long ago, one of the great growth stories in consumer retail, that's a stunning reversal of fortune. The interesting part is that this collapse has not been driven by an underlying business that's falling apart. Lululemon has continued to exceed analyst expectations for both earnings and revenue in recent quarterly reports, including its latest earlier this month. The problem, instead, has been an overall deceleration in growth and consistently soft forward guidance. Each quarter has brought a slightly weaker outlook than the market wanted to hear, and that sense of slowing momentum is what has truly done the damage. When a stock is priced like a growth name but stops growing like one, the re-rating can be brutal. The Valuation Tells Its Own StoryHere's where it gets interesting for those willing to look past the noise. Lululemon's price-to-earnings (PE) ratio is currently below 10, the first time it has been at that level in more than a decade. For a profitable, cash-generative, globally recognized brand with a still-growing footprint in some of the world's largest markets, that multiple is starting to look like a bargain. Compared with Lululemon's peak valuation, the current multiple is almost unrecognizable. That's not because the business has structurally broken, but because the market has shifted from extreme optimism to extreme pessimism. The truth, as is so often the case, is likely somewhere in the middle. And for patient investors, the middle is exactly where the outsized opportunities tend to live. Even the Cautious Voices Imply UpsideArguably, the most striking part of Lululemon's current setup is what the cautious analysts are saying. Sure, much of the recent commentary has been distinctly downbeat, with some calling the company a "rudderless ship in increasingly choppy seas," and there's a sense that not much will change until the new CEO, Heidi O'Neill, takes the helm in September. However, even with all of that skepticism baked in, Lululemon's consensus rating of Reduce may not tell the full story. The recently refreshed price targets from the more cautious firms still imply upside from current levels. Firms such as Daiwa Securities, Deutsche Bank, and Bank of America, for example, each rate Lululemon a Hold or equivalent and set targets ranging from $120 to $140, comfortably above where the stock is currently trading at around $110. Add that to the rock-bottom valuation the stock is trading at, and you have the kind of setup that's hard to ignore. A Risk-Reward That's Starting to TiltTo be sure, this still isn't a stock for the faint-hearted. There's a genuine possibility that things could get worse before they get better, particularly if the China headwinds intensify or if O'Neill's arrival sparks further strategic changes that need time to take hold. The market will likely remain unforgiving until there's hard evidence that the deceleration story has finally hit a floor. But patience here may eventually be rewarded handsomely. The China gaffe is the kind of headline that scares short-term traders out of a stock and lets long-term bulls quietly begin building positions. While the rest of the market is busy pointing and laughing at a misplaced drum, the smarter money may be paying closer attention to what comes next. |
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