Lululemon Athletica (NASDAQ: LULU ) has been on a tear in the past 12 months, and it looks like it's in great shape to continue this pace for at least the next year or two.
LULU makes what is considered to be the sine qua non of "athleisure" apparel - basically workout clothes that extend beyond the gym or yoga mat. While the brand solely targeted women in the beginning, it has now branched out to men and children as well.
While Nike (NYSE: NKE ) is a brand associated with baby boomers in particular, LULU is the next generation's brand. Gen Xers and millennials are the core demographic and their lifestyles have been built around this athleisure concept by all athletic retailers, including NKE.
It's just that Lululemon has built a loyal following because it is focused on quality clothing with unique styles. The bigger athletic wear companies find it hard to pivot as quickly and are more broadly diversified.
For example, while LULU stock trades at a market cap around $20 billion, Nike's market cap is around $135 billion, nearly 7x the size. Yet in the past 12 months, NKE is up over 30% and trading at a trailing price-to-earnings ratio of 66, while LULU is up 84% over the same time and it's trading at a trailing P/E of 53.
And all this growth comes at the expense of the most recent up-and-comer in the sector, Under Armour (NYSE: UA , NYSE: UAA ). It was touted as the brand that was going to bring down NKE, the giant killer in the sector.
LULU Stock vs. UA Stock
UA also started from simple beginnings, selling performance compression gear to athletes. But then its growth was constrained by its focus, and as a publicly traded company, it was encouraged to keep growth alive and expand.
But the thing is, UA's growth was so big and fast that it was spread too thin. Since its IPO highs in 2016, its stock has only floated lower. Granted, it's up nearly 40% in the past 12 months, but that's off lows.
It's a cautionary tale of niche players' "Icarus syndrome" when successful focused players go big but lose their brand and uniqueness through it all. Then they're stuck with massive amounts of inventory they don't know what to do with and scrap it or sell it at discounts. Either way, margins, revenue and earnings suffer.
This, however, isn't the case with LULU stock. It has stuck to its knitting, even if it has slightly expanded the space to athleisure from a fundamentally yoga-focused brand.
But it focuses on its brand and its strengths, and that is what is selling it to old and new customers alike. Because it is the only retail option for its clothing, it controls pricing and availability, which is key to strengthening margins.
It is becoming a core lifestyle brand that is also getting passed on to parents' children as well. That means Gen Zers will keep this growth path in motion.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor , Breakthrough Stocks , Accelerated Profits and Platinum Growth . His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com . Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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