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 $202 billion market cap company that’s done $37 billion in sales over the last 12 months. Lululemon is a $44 billion market cap company that has raked in a mere $3.87 billion over the last 12 months.
The only, and I repeat, the only flaw I can see in this stock is that few investors know about it. Yet, it is making money hand over fist behind the scenes and it has been for years.
Why, long before COVID-19 hit, this stock was on a tear, handing investors 100% more profits than Amazon, Apple, Facebook and Google—that’s 230% to 76%, 105%, 16% and 32%, respectively.
This company’s market leadership will continue for years to come.For details, click here.
And yet, on an average day (at least, on an average pre-social distancing 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 (2021) fiscal year, analysts expect the company to pull in $4.14 billion in revenues, with the nationwide shuttering of non-essential retail stores putting a dent in those estimates in recent months. Meanwhile, the company’s earnings growth has exceeded 20% for the past two years, and is expected to get back there next year once things presumably return to at least relative normalcy.
Nike’s sales and earnings growth have taken a hit the last couple quarters too. Still, in its current fiscal year (also 2021), analysts anticipate 12.2% sales growth and a whopping 78% EPS growth. But the company hasn’t grown sales by double digits since 2015, and it failed to grow the bottom line over the last 12 months.
Yet, 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 74, LULU 79
Forward P/Es: NKE 49, LULU 78
Latest quarterly earnings growth: NKE N/A, LULU -30%
Latest quarterly revenue growth: NKE 11%, LULU 2.2%
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). In the long term, Lululemon is growing faster than Nike, but you can almost throw out the latest quarterly numbers given what the coronavirus pandemic has been doing to retail sales in recent months. What’s telling is that institutional ownership in the two stocks hasn’t wavered in the last six months; each apparel stock remains well above 80% owned by hedge funds, which means Wall Street still thinks highly of both.
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 blue line, NKE stock is the red line. Year to date, LULU is up 46% despite a big downturn in September, while NKE is up 28%, comfortably ahead of the S&P 500 (+5.5%). Going back further, and thus lessening the blow of the February and March market crash, LULU is up 120% in the last two years, while NKE is up 62%. Over the last five years, LULU has outpaced NKE by more than five-to-one.
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 is doing to non-essential businesses. But with analysts expecting Lululemon to resume double-digit top- and bottom-line growth next 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 this February and March 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. 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 once things return to normal. But in terms of Nike stock vs. Lululemon stock, it’s no contest. Buy LULU – especially now that it’s been knocked back a bit.
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.