The Brand That Seems Perfect—At First Glance
Lululemon, a premium activewear and athleisure brand, is well-known for its high-quality materials, sleek designs, and loyal customer base. At first glance, it appears to be the perfect stock to own. Its revenues have grown impressively—up eightfold in the last 13 years and 2.5 times in just the last five (see image below).
Looking solely at this revenue chart, many investors would be tempted to invest. After all, who wouldn’t want to own a company that consistently grows year after year?
But the Stock Hasn’t Kept Up
Here’s where things get interesting. Despite its stellar business growth, Lululemon’s stock price hasn’t reflected the same momentum. From 2011 to 2018, it barely moved. Then, there was a significant run-up over the next two to three years, followed by another prolonged phase of stagnation.
Over the last five years despite strong revenue growth the stock has underperformed. It is currently near a five-year low (see image above), even though revenue continues to climb steadily.
Why This Disconnect Happens
It’s easy to assume that a growing company will see its stock price increase as well. However, stock prices are influenced by many other factors:
- Profit margins may be shrinking due to rising costs or increased competition.
- Future growth may already be priced in, especially if the stock had a massive rally in a short amount of time.
- Valuations might be stretched, and the market may require time to digest previous gains.
We’ve seen similar patterns in Indian markets too. Stocks like Hindustan Unilever, ITC, Reliance, and Asian Paints have experienced years of price consolidation, despite steady business performance. Often, by the time the consolidation ends, the company’s competitive edge may have weakened, or margins may have declined leaving little reason for the next big price jump.
Narrative ≠ Stock Returns
Do not confuse popularity or a strong narrative with actual stock performance. Just because everyone uses a product doesn’t guarantee that the stock will perform well:
- Ola electric scooters might be everywhere, but that doesn’t ensure stock performance.
- Paytm was a household name, yet the stock struggled post-listing.
- Nykaa enjoyed strong brand visibility, but the stock faltered despite the buzz.
Stock Prices Have a Mind of Their Own
India is an expensive market. Most stocks aren’t truly ‘cheap’; they are merely relatively less expensive. Finding obvious value buys can be tough. That’s why it’s often more practical to follow price trends and momentum rather than relying solely on business fundamentals or brand popularity.
What do you think—should stock decisions be guided more by financials or by price action? Have you experienced similar disconnects in your investments? Share your thoughts in the comments below! If this blog helped you see a new perspective, please SHARE it with your friends.
