Here's a puzzle for you: Lululemon Athletica Inc. (LULU) and Nike Inc. (NKE) are both dealing with the same sluggish consumer environment, softer demand, and inventory headaches. But the stock market has apparently decided they belong in completely different asset classes.

Nike trades like a blue-chip growth darling. Lululemon trades like someone's turnaround project, despite delivering better margins, cleaner execution, and now having a very motivated activist investor breathing down its neck.

That strange disconnect is exactly why Elliott Management's $1 billion stake purchase caught everyone's attention.

Two Companies, Two Completely Different Valuations

Lululemon remains down sharply year to date, even after clawing back some ground over the past month. The stock is still trading well below its 52-week high as investors remain skeptical about near-term growth prospects.

Nike, meanwhile, has experienced a much gentler decline and sits closer to its annual range, despite wrestling with its own demand and inventory problems.

Recent momentum favors Lululemon, but the real story lives in the valuation gap.

The Numbers Tell a Wild Story

Lululemon trades at roughly 14x trailing earnings and about 16x forward earnings, with an EV/EBITDA hovering near 8.5x. Nike commands more than 33x trailing earnings, over 40x forward earnings, and an EV/EBITDA north of 23x.

That's a staggering premium for Nike, even though Lululemon generates materially higher operating margins and stronger returns on capital. On a PEG basis, Lululemon sits near 1, while Nike's valuation assumes significantly richer growth ahead.

Profitability Versus Perception

The market seems to be pricing Lululemon as if its growth troubles are permanent and unfixable. But even with softer near-term earnings expectations, the company still posts industry-leading profitability and maintains a flexible balance sheet.

Nike, on the other hand, continues commanding a premium multiple despite margin pressure and a more complicated turnaround story.

Enter Elliott Management

Elliott's involvement changes the narrative from "struggling growth story" to "undervalued re-rating opportunity." The playbook is straightforward: refresh leadership, deploy capital through buybacks, and unlock underpenetrated categories like international markets and men's apparel.

If those moves gain traction, the valuation gap between Lululemon and Nike becomes increasingly hard to defend. Sometimes the market gets too pessimistic. Sometimes activists show up to prove it.