Yoga-inspired athletic wear company Lululemon Athletica Inc. (NASDAQ:LULU) has been down in the dumps since the start of this year. LULU stock is down more than 25%, largely due to the firm’s disappointing fourth-quarter results. Now, with LULU stock set to unveil its first-quarter progress this week and the stock trading near 52-week lows, investors may be wondering whether or not LULU is a buy ahead of earnings.

Lululemon is expected to report earnings of 28 cents per share on revenue of $513.8 million, 11 cents less than management originally predicted back when the firm issued its first-quarter guidance three months ago.

If the predictions are correct, that would mean the firm’s EPS dropped almost 7% from a year ago.

The Good News for Lululemon

There are some factors working in LULU stock’s favor. For one, the company is part of one of the only retail sectors that has a pretty positive outlook. Not only is the athletic wear market expected to remain popular among consumers in the years to come, but Lululemon’s reputation as a luxury brand has allowed it to avoid some of the problems that other brick-and-mortar firms have struggled with as consumers move toward online shopping.

Lululemon boasts a 17.2% profit margin. Compare that to peers like Under Armour Inc (NYSE:UAA), which reported a negative profit margin, or Nike Inc (NYSE:NKE) whose margins were 13.5%, and you can see that some of the flak the company is catching may not be entirely deserved.

The Bad for LULU Stock

However, one of the big challenges for Lululemon is its status as a luxury brand. Lululemon athletic wear is expensive, and consumers need to see enough value in the clothing to pay a premium for it. Part of managing that image is keeping sale and promotional items to a minimum.

LULU stock hasn’t quite been able to do that, though. In order to keep up with competitors, Lululemon appears to be becoming more willing to discount its inventory to boost sales. In the past, Lululemon would discount somewhere between 9% and 12% of its online inventory. However, in recent months that figure has been closer to 20% — a sign that LULU is shifting its strategy.

The Ugly

Back in March, Lululemon earnings caused the stock to lose around 20% in just one day, leaving LULU down almost 30% in the past three months, but it’s a still pretty expensive buy. Yes you heard that right — Lululemon is still expensive despite its massive fall. The firm’s forward P/E is over 18, just a little below NKE, a far more established — and more importantly, stable — company.

What to Watch

With LULU’s first-quarter earnings due out later this week, investors will be watching to see whether or not the company was able to ride on the tailwinds of the athletics market and turn things around. Lululemon has been working to up its online game, so management’s comments on how the firm is improving that aspect of its business will be top of mind, especially considering the major outage the Lululemon site experienced earlier this year.

Another factor to watch will be management’s plans to improve product assortment and manage promotional and sale activity. Not only has the firm been more willing to discount its merchandise recently, but LULU execs have admitted that the firm’s lack of vibrantly colored clothing was hurting sales.

While neutral colors have been the core of LULU’s style, the firm is likely to shake things up in an effort to revamp its image and drive traffic.

The Bottom Line

LULU’s earnings have had such mixed commentary that they will certainly be one to watch, but I’ll be watching from the sidelines. Right now Lululemon is in a rut, and the stock is far too expensive to bet on without some concrete proof that it won’t become another Abercrombie & Fitch Co. (NYSE:ANF).

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.