Lululemon is the Fastest-Growing Sports Apparel Company. Is it a Better Buy than Nike Stock? Let’s Break it Down.
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 $160 billion market cap company that’s done $40 billion in sales over the last 12 months. Lululemon is a $31 billion market cap company that has raked in a mere $3.75 billion over the last 12 months.
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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 its current (2020) fiscal year, analysts expect the company to pull in $3.89 billion in revenues. Meanwhile, its earnings are expected to swell by 23% for a second straight year.
Nike’s sales and earnings growth remain strong, at an estimated 7.9% and 19.7%, respectively, this fiscal year (also 2020). But the company hasn’t grown sales by double digits since 2015, and it failed to grow the bottom line in 2018 (though it did bounce back quite nicely last year).
Still, that EPS decline was an aberration; for the most part, Nike is still growing. And the 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!
Tale of the Tape: Nike Stock vs. Lululemon Stock
Trailing P/Es: NKE 35, LULU 58
Forward P/Es: NKE 29, LULU 42
Latest quarterly earnings growth: NKE 31.6%, LULU 33.4%
Latest quarterly revenue growth: NKE 10.2%, LULU 22.5%
Institutional ownership: NKE 85%, LULU 87%
From a value investing perspective, NKE is the slightly more appealing stock, though the margin isn’t as wide as you might expect given their relative ages (LULU held its IPO in 2007, NKE in 1980). And while Lululemon is growing faster than Nike, Nike is more than holding its own. Institutional ownership is almost identical, meaning the word is definitely out on LULU on Wall Street.
Not much differentiating the two stocks there. So let’s go to the chart.
Aha – now there’s a real gap. LULU stock is the red line, NKE stock is the blue line. In the last year, LULU is up 74% while NKE is up 34%, a bit ahead of the S&P 500 (+26%). Going back further, LULU is up 209% in the last two years, while NKE is up 58%. Over the last five years, LULU has more than doubled the performance in Nike stock.
Will that continue over the next five years? Probably not to that degree. But given Lululemon’s continued double-digit top- and bottom-line growth outlook, 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 exception of the fourth quarter of 2018, when all stocks fell sharply (particularly retail stocks), LULU has been going nowhere but up for two and a half 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. 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.
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.