Lululemon (LULU 0.60%) The stock price has fallen over 50% this year. After tremendous growth during the pandemic as the brand mastered the transition to athleisure globally, sales have suddenly dropped in its key markets and among its most important target audience, women. The brand is under attack from other clothing brands that now sell premium yoga and athleisure products.

The sell-off has only added to the pain for Lululemon shareholders. With the stock down and now at its lowest earnings-to-earnings ratio in 10 years, is now the right time to buy Lululemon? Let’s dig further and find out.

Stagnant women’s sales in North America

The biggest problem for Lululemon is sales in its home market of North America. In particular, sales to female customers. Last quarter, Lululemon’s consolidated sales rose 10% year-over-year to $2.2 billion. However, this growth came almost entirely internationally. Sales outside North America rose 35% year-over-year, while growth in North America was a measly 3%. Sales to men are growing faster than to women, suggesting that sales to women in North America were flat or even declining last quarter.

Female shoppers in North America were Lululemon’s first customers and are probably still its largest demographic by far. The sales decline is a concern for Wall Street as upstarts like Alo or Vuori gain market share and try to steal the company’s athleisure shopping dollars. To make matters worse, Lululemon just pulled its new product called Breezethrough after customer complaints, which is likely to further hurt sales.

It’s not all bad, as international sales now account for a larger portion of the revenue pie. There’s a huge runway for Lululemon to expand outside of North America. Even if domestic sales remain stagnant, overall sales should continue to grow due to growing pressure from international markets.

The rating is at its lowest level in 10 years

A falling share price has led to Lululemon trading at its lowest price-to-earnings (P/E) ratio in a decade. It currently trades at a P/E ratio of under 20, suggesting that investors’ growth expectations have fallen. Expectations have fallen due to fears about competition in North America and whether the company can re-accelerate its revenue growth.

I can’t see any other reasons for this sell-off. Profit margins look strong at over 20% over the past 12 months and have been growing for many years in a row. Shares outstanding are starting to fall as management uses excess cash flow to buy back shares, which helps increase shareholder returns. As we discussed above, the Men’s and International segments are doing very well.

Can Lululemon solve its problems with female shoppers in North America? I don’t know. But I would lean toward them solving those problems and getting back to growing. The company has a long history of gaining market share in North America, and it seems more than likely that this slowdown in 2024 will just be a blip when we look back in 10 years.

LULU PE ratio data by YCharts

Is the stock a buy?

With the lowest P/E ratio in 10 years, I think Lululemon stock is a great candidate to buy on dips at current prices. The P/E ratio of 19.5 is well below the S&P500 market average and severely underestimates Lululemon’s future growth potential. Over the past 10 years, Lululemon’s revenue has grown nearly 500% while operating margins have continued to expand. Investors seem to be betting that this growth is over.

I don’t think the company will grow 500% in the next 10 years as it has nearly $10 billion in revenue. However, I think revenue can be much higher in 10 years due to growth internationally and in the men’s segment. Add in margin expansion and share buybacks and earnings per share (EPS) should grow double digits for the foreseeable future. With the lowest P/E ratio in 10 years, Lululemon stock is a good buy at the current price.