Lululemon Athletica (NASDAQ:LULU) is up more than 56% year-to-date. That’s pretty impressive in an economy growing at a 2% rate.
But this isn’t too surprising, since the original “athlesiure” — athletic clothes that double as leisure wear — company is up more than 200% in the past three years. That’s about 64% a year for LULU stock.
What’s more impressive is the fact that its trailing price-to-earnings ratio is in the mid-40s. That means for all its growth, it’s still relatively well priced for a full-on growth stock. So, it’s still one of my favorite buys, as well as a mainstay of my Growth Investor model portfolio.
What Makes LULU One of 2019’s Best Stocks?
This Canada-based firm has two strong things going for it.
First, it remains a direct-to-consumer company. Unlike some of its larger rivals, it doesn’t flood the market with merchandise. You can’t find Lulelemon clothing at virtually every store or on every website. LULU sells its products out of its own stores and online on its own website.
That does two things for the company. It can better control costs and it can maintain high quality. It knows what sells and then makes enough to supply its stores and site.
That keeps Lululemon’s production costs down — the company isn’t wasting a lot of money making things that sit on shelves. This contributes to a great rating for its operating margin growth in my Portfolio Grader — a key factor in my Growth Investor recommendation.
Second, because it knows what its customers want, it can add products strategically. This is a stronger approach than offering several new products at once and then later learning what people want to buy.
These strengths mean Lululemon can charge a premium for quality products that are in limited supply. LULU gained its reputation as much for its quality as it did for its trendy patterns and upscale looks.
Keeping both of these in balance has been a key to its success so far.
LULU Stock and Lululemon’s Membership Club
The second force that keeps LULU stock chugging along is the company’s smart management. The key to success here is that its management has known how to time Lululemon’s growth.
Lululemon hung back as its popularity grew, choosing to focus on building out its yoga business into the women’s athleisure force it is today. Thanks to this, it was able to grow its reputation in a much more profitable way than simply flooding the market with stores and products. That cachet with its target market (and, thus, staying power) is a big reason I named it as my pick for the InvestorPlace Best Stocks of 2019 contest.
And now, as it enters the men’s space, analysts are drooling over the potential.
LULU also developed a membership club that has some good features for LULU believers. But most importantly, it is a source of regular recurring revenue, which is something most retailers only dream about.
My Portfolio Grader has LULU stock at a “B” rating right now, largely because of the ongoing trade war and what it might do to consumer spending in the third and fourth quarters. There’s still the possibility that President Donald Trump’s administration may add to tariffs if the trade talks next month don’t go well.
And it’s also smart to be cautious as a global recession builds outside the U.S.
But I have little doubt that LULU will find a way through.
How I Find the Crème de la Crème
Given everything I’ve said about Lululemon here today, it should come as no surprise that it’s not only my selection for the Best Stocks for 2019 contest (and leading the pack by a mile).
LULU is also a staple of my High-Growth Investments Buy List for Growth Investor, where it’s paid off for us with a 51% return in less than a year.
If you’d like to see how to buy this High-Growth Investment for your portfolio, click here to give Growth Investor a try.
When you do, you’ll learn all about a key strategy of mine: identifying “Money Magnets.”
This one is all about stocks that are seeing an influx of cash, just like LULU — while also paying fat, reliable dividends.
In 2019 more than ever, the cream is going to rise to the top. So please take a moment to check out the briefing I’ve prepared for you at this link.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.