Stock Valuation Of The Week

Stock Insight

Lululemon (LULU) presents a compelling story of strong historical performance with a 5-year free cash flow CAGR of 32.65%, though its trendline growth rate of 8.21% suggests that future expansion may stabilize. This gap between historical and trendline figures reflects both the company’s earlier hyper-growth phase and the potential for a more sustainable pace going forward.

Using a 10.5% projected growth rate and a 9.91% discount rate, our model arrives at a fair value estimate of $273.14, slightly above its current price of $258.50. This results in a modest 5.4% upside, factoring in a conservative 20% margin of safety. The terminal growth rate assumption of 2.5% reflects a steady long-term outlook in a competitive retail landscape.

As trade-related uncertainties ease — particularly around tariffs — sentiment toward LULU should improve. If margin resilience holds and discretionary spending remains stable, the brand may continue to deliver consistent free cash flow. Still, investors should weigh the potential for normalization in growth against LULU’s strong brand equity and expanding international footprint.