The 'Big Short's' Michael Burry Has Seen His Largest Position Fall Over 50% This Year. Should Investors Sell the Stock?

Investing is hard, even for some of the best in the business.

Dr. Michael Burry made a name for himself successfully betting against the housing market before it collapsed during the Great Recession. This series of events was portrayed in the well-known movie, "The Big Short," in which actor Christian Bale portrayed Burry.

Since then, Burry has run his own hedge fund and now runs a very popular Substack publication, where he shares his thoughts on the market and how he is investing his personal wealth.

This year, Burry's largest position, Lululemon (NASDAQ:LULU), has been crushed, down over 52%. The company recently reported abysmal earnings, sending its stock down nearly 18%, as of 12:36 p.m. ET on Sept. 4.

Should investors sell the stock?

A tough year continued by a tough quarter

In the first quarter of Lululemon's fiscal year 2026, the company lowered its full-year guidance due to weak sales in North America and negative sentiment stemming from poorly perceived promotional campaigns.

In the recently reported second quarter, the company posted adjusted earnings per share of $2.06, handily beating Wall Street's expectations. However, revenue of $2.42 billion slightly missed consensus estimates, with comparable sales falling 9% year over year.

But what is even more concerning is that the luxury apparel maker once again significantly slashed its full-year outlook. Full-year revenue was expected to be in the range of $11 billion to $11.15 billion.

Now, management is calling for net revenue inside a range of $10.35 billion to $10.5 billion, reflecting a 5% to 7% annual decline. The kicker: the new outlook includes tariff refunds.

"Today, lululemon (LULU) is the trickster in my portfolio," Burry wrote in a Substack note. "This time the trickster is my largest position, and it does seem determined to take me where mermaids fear to tread."

For the second quarter in a row, Lululemon attributed struggles to "negative commentary," according to interim CEO Meghan Frank, who also cited a larger-than-anticipated decline in sales of some of its most critical categories, such as leggings.

Gross margins actually increased 2% year over year to 60.5%, although they would have been 54.9%, excluding the positive lift from tariff refunds.

Should investors sell the stock?

Wall Street analysts are all over the map with Lululemon. Following the report, analysts at BNP Paribas slashed their price target by 50% to $44 per share and maintained an underperform rating on the stock.

The stock currently trades around $100 per share, which is essentially the average price target among analysts who have issued research reports on the company over the past three months, according to TipRanks.

While Burry noted that the company's performance has been frustrating, he also said he remains invested and would buy more if the stock slipped below $100.

Lululemon has struggled due to the issues mentioned above, as well as sluggish sales in the Americas and weaker-than-expected growth in China. There's also been significant competition and complaints that the clothing has become stale.

An issue that I'm struggling with is that consumer spending hasn't exactly slowed this year. Real private domestic final purchases increased 3% in the first half of the year, and unemployment remains at 4.1%.

While issues at Lululemon remain company-specific, I do worry what would happen to sales should the economy show greater weakness.

However, for bulls like Burry, Lululemon is still generating strong gross margins and has a new CEO about to take over, which could rejuvenate the company's strategic direction. The stock also now trades at just over 9 times forward earnings.

So a higher safety buffer may now be priced in. But it can be tough to catch a falling knife; the brand continues to suffer, and I would be worried about what might happen to sales should the economy weaken further.

At this point, I'm more prone to keep this on the watch list or take a smaller, more speculative position.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.