Better Clothing Comeback Stock: Aritzia or Lululemon?

Aritzia (TSX:ATZ) and Lululemon (NASDAQ:LULU) are depressed clothing stocks with plenty of growth left in the tank.

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The retail stocks have been under serious pressure in recent quarters, thanks in part to macro headwinds and gloomy sentiment. Undoubtedly, it’s been hard to touch any retail play, even the ones that stand behind incredibly powerful brands. It’s hard to catch a bottom in the top retailers. However, if you’re in it for the long run, I view considerable value to be had in some of the beaten-down names in the space.

In this piece, we’ll consider two Canadian clothing retailers: Aritzia (TSX:ATZ) and Lululemon (NASDAQ:LULU). Shares of both firms are up against it, but with modest expectations moving forward and compelling valuations, the following plays may make terrific clothing comeback plays. Without further ado, let’s have a closer look at the firms and determine which play is the better bet as we sail into autumn and winter.

Aritzia

Aritzia stock used to be the hot growth play on Bay Street. Since bottoming in 2020, shares of the popular Canadian clothing retail took off, surging from around $13 and change to its near $60 peak. Most of the gains have been returned, with the stock now back at $22 and change. Indeed, it’s been a horrid fall for the retailer, but the brand is as strong as ever. And it will be the brand that will help the stock go in fashion again, once consumers have enough money to cover more than just the necessities.

Clothing is a nice-to-have, not a must-have. As a recession rolls around and inflation continues to stay well above historic averages, it’ll be tough for many to justify pricy purchases at Aritzia. Not when food inflation has gone out of control while rents keep creeping higher.

Though it’s hard to find a bull case on the stock in this climate, I think the valuation (15.1 times trailing price to earnings) is enough reason to get in right here. Though $20 per share could be tested, I’d not be afraid to add to a position as the once-glorified retailer continues sailing against prominent headwinds in the retail scene.

Lululemon

Lululemon is another retail icon based out of Vancouver. For some reason or another, the stock doesn’t trade on the TSX Index, despite being a Canadian-born firm. Regardless, I think Canadians may wish to pick up the Nasdaq-traded shares while they’re off from their highs.

Year to date, the yoga-wear maker has been on the mend, with shares up more than 17%. Despite the relief rally, shares are still 20% from their all-time highs. Compared to Aritzia, which is down nearly 63% from its high, that’s certainly not bad.

With the recent partnership with exercise equipment maker Peloton in the books, Lululemon may have the means to continue its relief rally. However, I believe the partnership is a bigger deal for Peloton, as it looks to move on from its historic funk.

Better buy: Aritzia or Lululemon?

Aritzia isn’t just the cheaper stock; it has the more promising growth prospects, in my opinion. Aritzia is also a much smaller company, with a mere $2.47 billion market cap versus Lululemon’s US$47.9 billion market cap. With more room for growth and a severely battered stock, upside seekers may wish to stand by Aritzia. Do keep in mind the wild fluctuations, though!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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