Lululemon is the Fastest-Growing Sports Apparel Company. Is it a Better Buy than Nike Stock? Let’s Break down Nike stock vs. Lululemon stock.
Nike (NKE) has been king of the sports apparel market for decades, swatting away challengers as easily as Dikembe Mutombo might redirect a Muggsy Bogues layup attempt. Under Armour (UA) has failed to overtake them. Adidas (ADDDY) has faded a bit. You don’t even hear about Reebok anymore. Nike is still the king. Lululemon (LULU), a far more niche apparel company, may be its closest challenger. So I thought it might be worthwhile to compare Nike stock vs. Lululemon stock.
In terms of size, there’s no comparison. Nike is a $212 billion market cap company and Lululemon is a $45 billion market cap company.
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And yet, on an average day, you might see as many people (men and women) wearing Lululemon yoga pants and pullovers as you see people wearing Nike gear. Ten years ago, that wasn’t the case.
The numbers support the anecdotal evidence. In 2010, Lululemon did just $411 million in sales. In 2020, net revenue increased 11% to $4.4 billion, exceeding analysts’ expectations of the company to pull in $4.14 billion in revenues, even with the nationwide shuttering of non-essential retail stores putting a dent in those estimates. Earnings did take a hit last year, but are expected to bounce back in a big way this year: analysts anticipate 43% EPS growth.
Nike’s sales and earnings growth have taken more of a hit the last couple. But this year, analysts anticipate double-digit sales growth (16%) for the first time since 2015, and EPS to nearly double. Granted, any year-over-year comparisons to 2020 are tricky. But for the most part, Nike is still growing. And the general disparity in sales growth in NKE vs. LULU is no surprise given that Nike is the much older company, and perhaps the most universally recognized sports brand on the planet.
Even if it eventually expands beyond its yoga roots, Lululemon may never catch Nike in terms of sales, global reach, or popularity across all demographics (Lululemon’s customers tend to be white and higher income, whereas Nike gear is worn by all). That said, which apparel stock is the better investment right now: NKE or LULU?
Let’s break it down!
Nike Stock vs. Lululemon Stock
From a value investing perspective, NKE is the slightly more appealing stock, trading at 33 times forward earnings vs. a forward P/E of 50 for LULU; the margin isn’t as wide as you might expect given their relative ages (LULU held its IPO in 2007, NKE in 1980). In the long term, Lululemon is growing faster than Nike. What’s telling is that institutional ownership in the two stocks hasn’t wavered; each apparel stock remains well above 80% owned by hedge funds, which means Wall Street still thinks highly of both.
Going back further, LULU is up 93% in the last two years, while NKE is up 61%. Over the last five years, LULU has outpaced NKE by about 2.5 to 1.
Will that continue over the next five years? Probably not to that degree, especially since it will take a while for all retailers to recover from the damage COVID-19 did to non-essential businesses. But with analysts expecting Lululemon to resume double-digit top- and bottom-line growth this year, I expect LULU will continue to outperform both the market and NKE in the next half-decade. Sure, the valuation is a bit high, but not that high given the growth trajectory. With the very notable (but not unique) exceptions of last year and the fourth quarter of 2018, LULU has been going nowhere but up for roughly three years. I don’t see any red flags that will prevent it from continuing to rally.
As for Nike stock, it remains a rock-solid long-term investment. If you add NKE to your portfolio and stash it away for 10 years, you’ll probably do quite well (it pays a modest 0.8% dividend yield too, which helps over the long haul). But LULU is the better growth stock.
Lululemon may never knock Nike from its sports apparel perch, no matter how many people you see wearing yoga pants to the local coffee shop. But in terms of Nike stock vs. Lululemon stock, it’s no contest. Buy LULU.
Do you invest in Nike stock or Lululemon? Why or why not?
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version, published in 2019.