What would your reaction be if Lululemon stock plummeted by 90% or more in the coming months? While that might sound extreme, history shows it’s not out of the question. So far this year, the stock has already shed over 30% of its value — including a sharp single-day drop of more than 14% after the company reported its fiscal 2024 results, followed by a 10% dip after Trump’s tariff news. Given how the stock has responded to previous economic slowdowns, a drop from its current level near $260 to below $100 isn’t entirely implausible.
What’s striking is that the recent downturn comes despite strong financial results. LULU posted fourth-quarter earnings per share of $6.14 and revenue of $3.61 billion, both beating expectations of $5.85 and $3.57 billion, respectively. Yet, fears around slowing consumer spending, global tensions, and cautious forward guidance have rattled investors.
Key insight: In times of economic decline, LULU stock has shown a tendency for steep drops. It lost 36% during the inflation-driven selloff, nearly 47% during the Covid crisis, and over 90% during the 2009 financial meltdown. That last one isn’t a typo — market reactions to economic fears can be extreme. So, is Lululemon’s current situation comparable to its state during the Great Recession?
In March 2009, LULU reported $45 million in operating cash flows and traded at about 12 times that number — an 8% yield. For comparison, over the past year, the company generated $2.27 billion in operating cash flow, translating to a 7% yield on a $31 billion market cap. So what does this mean? While another crash of the same scale seems unlikely given the company’s maturity and investor confidence, concerns remain valid. Individual stocks can be much more volatile than broad portfolios. If you’re after growth with less risk, the High-Quality portfolio may be a better fit, having outperformed the S&P 500 with over 91% returns since inception.
Some important highlights of how LULU stock reacts during downturns:
Inflation Shock (2022)
- LULU stock declined 36.4% from a high of $404.66 on April 19, 2022, to $257.51 on May 24, 2022, while the S&P 500 fell 25.4%
- The stock fully recovered to its pre-crisis high by October 16, 2023
- It then climbed to $511.29 on January 1, 2024, and is currently trading around $260
Covid Pandemic (2020)
- LULU stock dropped 47.3% from $263.68 on February 20, 2020, to $138.98 on March 16, 2020, while the S&P 500 declined 33.9%
- It fully rebounded to its pre-crisis level by May 21, 2020
Global Financial Crisis (2008)
- LULU stock plunged 92.3% from $29.00 on October 22, 2007, to $2.25 on March 9, 2009, versus a 56.8% drop in the S&P 500
- The stock fully recovered its losses by December 9, 2010
As growth expectations slow and economic uncertainty looms, ask yourself: Would you keep holding LULU stock if it slid to $250, $200, or even lower? It’s never easy to stay invested in a declining stock. Trefis has partnered with Empirical Asset Management, a Boston-area wealth manager, whose strategies delivered gains even during the 2008-09 market crash. Empirical includes the Trefis HQ Portfolio in its allocation strategy, helping clients achieve stronger returns and reduced risk compared to the broader market — as shown by the HQ Portfolio performance metrics.
Invest with Trefis
Market Beating Portfolios | Rules-Based Wealth
Read the full article here
