Personal Finance

Better Buy: Lululemon Athletica Inc. vs. Nike Inc

LULU Chart

Nike (NYSE: NKE) and lululemon athletica (NASDAQ: LULU) are both serving the healthy lifestyle megatrend, and both have very strong brands. Nike has been more consistent in recent years, but the problems that slowed Lululemon's growth a few years ago appear to be fixed.

What do Nike and Lululemon offer investors going forward?

Brand power

LULU Chart

LULU data by YCharts .

Lululemon has not had the advantage of leadership consistency like Nike. However, CEO Laurent Potdevin is very capable. He joined the company during a difficult time, when one of Lululemon's top-selling yoga pants had to be recalled because of poor quality checks in the supply chain. And, Potdevin is also well-liked by Lululemon employees, earning a Glassdoor rating of 90%.


In the end, the choice comes down to whether you're looking for slow and steady with less risk, or fast and nimble with more risk. In addition to relatively lower business risk, Nike offers investors a dividend yield of 1.3%, whereas Lululemon has no dividend payout. This reflects the relative growth opportunities of both businesses. Nike is large and more saturated in its core geographies, while Lululemon still has plenty of room to grow in the U.S. and around the world. So, it makes sense for Lululemon to reinvest all of its earnings in the business at this point.

Considering Nike and Lululemon's relative risk-to-reward profile, both businesses trade for reasonable valuations. Nike's price-to-earnings , or PE ratio on next year's expected earnings is 21, while Lululemon's is 26. Lululemon deserves to trade at a higher PE ratio because of its higher future growth potential.

The growth prospects of the industry still look promising, so investors should do well with either Nike or Lululemon -- or perhaps both.

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John Ballard has no position in any stocks mentioned. The Motley Fool owns shares of and recommends lululemon athletica and Nike. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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