In 2022, investors should pay attention to this top apparel company’s shares.

Shares of Lululemon have returned 440% over the past five years, far exceeding the performance of the broader market. The popular athleisure brand has enjoyed remarkable success not only by selling high-quality, premium-priced products for women, but now it is also a top clothing option for men. In addition to this, the business is expanding into international markets to grow. 

Should investors add Lululemon stock to their portfolios now that the stock is down 15% in 2022? Now let’s dig a touch deeper.

Those Look Great on You

In the sports apparel industry, Lululemon is often overshadowed by Nike, the juggernaut. Nike generated $47.1 billion in revenue in the trailing 12 months, while Lululemon generated $7.1 billion. It’s no wonder Nike has a $145 billion market cap, and the latter has $42 billion. Further, Nike has been around for almost six decades, so it has a much longer operating history. 

While Lululemon is a successful business, investors should pay attention to three key attributes that make it so. One of the first advantages that the Canadian company has is a strong consumer brand. In addition to serving women, the company now offers quality menswear, as I mentioned earlier. In the fiscal 2022 second quarter, Lululemon had a gross margin of 56.5%, proving that they are a high-end brand. Pants, shirts, jackets, and hoodies sold by the company are in high demand. 

Lululemon ranked second in Piper Sandler’s Fall 2022 survey of teens, Taking Stock with Teens. Having younger consumers associate with Lululemon and become lifelong customers is a fruitful place for the brand to be. 

Furthermore, Lululemon has a great deal of growth potential. There’s no wonder the stock skyrocketed, too, as revenue and net income soared 167% and 245%, respectively, from fiscal 2016 through fiscal 2021.

Growth has not slowed down yet. There are still plenty of opportunities for Lululemon to increase its top line in the future. Management anticipates $12.5 billion in revenue by 2026 (compared to $6.3 billion in fiscal 2021). To achieve this goal, they will double their sales in men’s apparel and digital, as well as quadruple their international revenue.  

Lululemon generated 83% of its overall revenue in North America during its most recent quarter. With this in mind, overseas markets, particularly China, represent a significant opportunity to drive sales up in the long run. 

Last but not least, although Lululemon has been a stellar growth stock to own, the company is also extremely profitable. As an example, the latest quarter’s operating margin of 21.5% demonstrates this. As a result, the company has a lot of free cash flow that can be returned to shareholders. The number of outstanding Lululemon shares decreased in fiscal 2014 as the company began repurchasing stock. 

It’s critical for smart investors not to lose sight of just how fantastic Lululemon is as a business.

So, Should We Jump In?

The challenge for investors does not end with finding worthwhile companies to look at. Additionally, you need to ensure that the valuation of the company is appropriate before buying it. The current price-to-earnings ratio of Lululemon’s stock is 39, which at first glance appears overpriced. The P/E ratio for the company is cheaper than its trailing five-year and ten-year averages, however. 

Despite this, Nike’s stock still sells for a higher P/E than this multiple. Lululemon, however, has much better growth prospects and improved profitability (according to its margins). Right now, investors might want to consider adding a small allocation to Lululemon.