Management's strategy could drive higher revenue next year.
Shares of Lululemon Athletica (LULU+1.71%) have given investors a wild ride in recent years. This was a high-performing athletic apparel brand until macroeconomic headwinds caught up with it in the last few years. However, this is also why investors can currently buy shares at a modest valuation that could set up great returns from here.
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Why Lululemon could rebound in the new year
Total revenue grew by just 6.5% year over year in the recent quarter, significantly below its 20% average quarterly top-line growth over the last decade. But all that is well-priced into the stock at this point. Easing inflation and lower interest rates could serve as catalysts for rising demand over the next few years.
A near-term catalyst is management's focus on introducing new styles in the spring, which aims to address inventory staleness and stimulate increased demand.
As investors focus on brighter days ahead, the stock seems to be finding a bottom below $200. The valuation is attractive, with a forward (one-year) price-to-earnings multiple of 14. This is a bargain for a premium brand that generates above-average margins and still has ample international growth potential.
Lululemon stock is a compelling buy for 2026, particularly for investors who are already heavily invested in highly valued growth stocks and are looking to add potentially undervalued stocks to their investment portfolio.
