LULU is the preferred buy over NKE due to superior valuation, margins, and lower turnaround burden.

Nike and Lululemon are among the underperforming sportswear retailers, with their shares trading near 52- week lows. I wanted to know which of these two declining stocks represents a better buying opportunity at the moment .

Both Nike and Lululemon are facing similar headwinds that are hindering sales growth and even pushing them into decline. Overall, Nike is still a much larger company with sales of $46 billion over the past twelve months, while Lululemon comes right behind it.

Well, maybe I shouldn't say right behind it, but Lululemon was growing faster and catching up with Nike before these recent challenges.

Lululemon generates annual sales of $11 billion. Looking ahead, sales for both companies are likely to remain weak. The management teams at both companies have lowered their near-term growth forecasts and are still trying to cope with macroeconomic challenges such as tariffs and reduced disposable income.

Interestingly, although Lululemon was and still is the smaller company in terms of revenue, it achieves better profit margins than Nike.

Lululemon products are considered more distinctive and are sold at higher average prices, allowing the company to achieve larger profit margins.

Over the past decade, Lululemon has consistently achieved better operating profit margins than Nike. Recently, Lululemon recorded an operating margin of 18%, while Nike recorded 8.8%.

However, Lululemon's operating margin fell from 25% to 18%, while Nike's operating profit margin rose mainly due to the tariff refunds it received.

Furthermore, the return on invested capital is in Lululemon's favor at 21.4% compared to 12.4% for Nike. So, for the three metrics we've looked at so far, Nike has higher overall sales, but Lululemon has achieved better growth.

Lululemon also achieves better operating profit margins and better returns on invested capital compared to Nike. Nike is currently trading at a forward P/E ratio of 15.7, compared to Lululemon which is trading at a forward P/E ratio of 11.4.

At the same time, I calculated a fair value for Lululemon at $126. The current market price is $100. Therefore, Lululemon appears to be undervalued, whether measured on a forward earnings multiple basis or on a discounted cash flow basis.

I can't say that Lululemon stock appears to be undervalued or significantly undervalued at these levels. So, for the sake of transparency, I own shares in Lululemon. I bought it about a year ago. I suffered a significant loss in this position.

But, if I had to choose between these two stocks today, I would choose Lululemon.

Its valuation is more attractive, its profit margins are better, and it has less work to do to rebuild its business compared to what Nike needs to regain its competitive position.

Needless to say, I have categorized both as buying opportunities. I like both of them at these prices, but if I had to choose one, I would choose Lululemon.