Better Buy: Lululemon Stock or Canada Goose?

Retail stocks such as Lululemon Athletica and Canada Goose continue to grow sales in 2023. But which stock is a good buy right now?

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Popular retail brands may turn out to be solid long-term investments as they enjoy strong customer engagement rates, resulting in repeat purchases. Two such Canada-based retail companies include Lululemon Athletica (NASDAQ:LULU) and Canada Goose (TSX:GOOS). While LULU stock has returned 2,650% to shareholders since its IPO (initial public offering) in 2007, shares of Canada Goose are down 14% since the company went public in early 2017.

Let’s see which retail stock is a better buy right now.

Is Lululemon Athletica stock a good buy right now?

Lululemon Athletica operates in the athletic apparel market and is valued at almost US$50 billion by market cap. The company has increased revenue by at least 18% in each of the last 12 quarters, despite macro challenges ranging from supply chain disruptions, inflation, and an uncertain economic environment.

A rapidly expanding top line has allowed Lululemon to increase its adjusted earnings from US$0.71 per share in fiscal 2018 (ended in January) to US$2.68 per share in the second quarter (Q2) of fiscal 2024. Despite its massive size, analysts expect Lululemon to increase sales by 18.3% year over year to US$9.6 billion in fiscal 2024, while adjusted earnings are forecast to rise by 21% to US$12.16 per share.

Last April, Lululemon outlined a strategy to boost sales in verticals such as men’s merchandise, digital, and international markets to US$12.5 billion in fiscal 2025, up from around US$6 billion in 2021. A key revenue driver for Lululemon is the expansion of its retail store network, which stands at 672 at the end of Q1. The company’s management expects to open 23 net new stores in the current quarter.

Moreover, Lululemon now generates 40% of total sales from online channels, allowing it to gain traction in several global markets. China also presents a massive opportunity for Lululemon. The country, which currently accounts for 13% of total sales, saw revenue increase by 61% in Q1.

Priced at 31.7 times forward earnings, LULU stock is not cheap. But analysts remain bullish and expect shares to surge by 12% in the next 12 months.

Is Canada Goose stock undervalued?

Down 78% from all-time highs, Canada Goose is valued at $2 billion by market cap. Canada Goose designs, manufactures, and sells luxury apparel-based goods globally. Despite a sluggish macro environment, lower consumer spending, and elevated inflation levels, the company increased sales by 18% year over year to $94.8 million in fiscal Q1 of 2024 (ended in June).

Its direct-to-consumer sales were up 60% in the June quarter and now account for 66% of total sales, compared to 50% in the year-ago quarter.

Higher online sales should enable Canada Goose to increase adjusted earnings from $1.05 per share in fiscal 2023 to $1.34 per share in 2024. The company is on track to end 2024 with revenue of $1.45 billion, up 19% year over year.

GOOS stock is priced at 1.3 times forward sales and 14.9 times forward earnings, making it one of the cheapest growth stocks on the TSX. Analysts expect Canada Goose stock to rise by more than 20% in the next 12 months.

The Foolish takeaway

While Lululemon stock has created massive wealth for long-term investors. But Canada Goose’s compelling valuation is hard to ignore. If you already have LULU stock in your equity portfolio, you can consider owning shares of Canada Goose, too.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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