Michael Burry Says Two Beaten-Down Stocks Offer Better Value Than Microsoft — Buys Lululemon Despite Headwinds

The Big Short's Michael Burry disclosed in a Substack post last week that he bumped his stake in the apparel company Lululemon Athletica after the shares fell into the low-to-mid $110 range despite reporting a fiscal Q1 earnings and revenue beat.

'The relative value in LULU and PYPL by my estimation outweighs that of Microsoft at this time,' Burry had noted.

The stock price slump could be attributed to the athleisure company cutting its full-year 2026 guidance and expecting lower-than-expected Q2 revenue of $2.45 billion to $2.48 billion amid waning customer interest and the failure of some products to perform as expected. Management has pointed to ongoing weakness in North America, where revenue tanked 3% from a year earlier.

However, Burry said in the Substack post that Lulu's latest earnings calls lacked meaningful updates, but the market could be overlooking its underlying financial strengths.

'The lululemon athletica (LULU) earnings call was uninspiring as expected. That was interim co-CEOs defined. No new information. Gross margins fell 330 basis points (bps), mostly tariffs at -380 bps offset by +100 bps of cost cutting, then marked down b...-40 bps of markdowns. If no tariff impact, gross margins would have compared much better with prior levels,' Burry mentioned on Substack.

He highlighted that the company has around $1.5 billion in cash and almost negligible financial debt, adding that this year's free cash flow dynamics was much better than last year. 'Cash conversion cycle is nearly 3 months, roughly in line with history back to 2012, though trending up ever so slightly,' Burry added.

In short, Burry believes Lulu's profits faced pressure in Q1 as tariffs and other trade-related overheads impacted gross margins, but it would have likely posted better profitability numbers without the tariffs.

'Of the 32 Wall Street analysts covering LULU, only 2 have buy ratings. This is the least cheery consensus I have seen for a company in this financial condition without significant legal or regulatory liabilities pending,' wrote Burry.

Lulu's Long-Term Execution, Growing Book Value per Share

Burry highlighted Lululemon's long-term execution track record and praised the company's finance department for maintaining operational discipline in a difficult retail landscape.

'These days a steadily growing tangible book value per share is rare and a strong sign. In LULU's case, its tangible book value per share has doubled from $20/share to ~$40/share over the last 3+ years. High returns on equity match high returns on capital,' Burry had noted.

He is known for making contrarian market bets and has been warning about an imminent AI bubble burst. This could be the reason he is currently preferring Lululemon over AI leaders like Microsoft in the near term.

For Lululemon, one of the bright spots remains China as revenue in the Mainland rose 30% year-over-year in Q1, making it the company's fastest-growing market. Management sees China as a long-term driver of growth despite faltering demand in North America. The Lululemon stock is down by over 43% year-to-date, implying that Burry is continuing to ramp up his value-investing plays.

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