There have been many massive losers in the apparel scene in recent years, but not every clothing stock has been out of fashion on Wall and Bay Street. Indeed, the power of a good apparel brand has really been put to the test in recent years. And with a questionable consumer who’s only shown subtle glimmers of resilience, I wouldn’t be so quick to chase the losers as they run the risk of losing increasing market share to rivals, including new entrants on the scene.
Indeed, I’ve done a number of prior pieces on Lululemon (NASDAQ: LULU) and its fall from grace. Undoubtedly, I never would have thought the stock would have shed half of its value, let alone close to 70%. And while the damage has been done, I’m not so sure I’d be willing to step in as a buyer just yet. The last quarter was rough, and there’s really no reason to believe the next one will be any better, especially given all the question marks surrounding apparel at large.
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Aritzia stock is melting up as Lululemon melts down
Either way, Aritzia (TSX: ATZ) is a fast-rising apparel firm that’s actually feeling the wind at its back rather than its head. And with shares continuing to blast off to new all-time highs, now going for just shy of $89 per share, I’d be more inclined to pay up for the growth, momentum, and the longer-term expansion potential.
It’s hard to believe, but ATZ stock is one of the biggest gainers for the TSX in the past year, now up over 90%. In the past two years, shares have been up close to 300%. That’s an incredible surge fuelled by broad strength. As rates fall, I think such strength could be amplified. Perhaps there’s a reason why ATZ stock gained close to 3% in a day after the Bank of Canada and Fed cut rates.
The U.S. expansion (a driver I’ve praised in a number of previous pieces), in particular, could propel the $10 billion clothing retailer into something so much more. Who knows? Aritzia might become the larger company by market cap in the next three years if shares of LULU keep tumbling while ATZ stock continues firing on all cylinders.
For now, the $20 billion Lululemon seems to be between a rock and a hard place, while Aritzia is crushing it on a number of metrics. Personally, I think athleisure is going out of style, and it’s probably not coming back anytime soon. Of course, that doesn’t mean Lululemon can’t continue to be the king of the yoga studio. Either way, competitive pressures and changing times lead me to question whether LULU stock’s 12.75 times forward price-to-earnings (P/E) multiple is a fair price to pay for a firm that could be up against it.
I’d rather pay up for performance than bottom-fish
Of course, ATZ stock is miles more expensive, going for over 33 times forward P/E. As an apparel firm that’s not cornered itself in a niche part of athletic apparel (Aritzia makes a wide range of clothes for casual, professional, and, of course, athletic activities), I see a higher growth ceiling as the company looks to keep opening up new stores across America.
Of course, the firm could stay in Canada and still have a ton of growth left in the tank. Either way, Aritizia looks like one of the hottest apparel stocks out there, and I’d rather pay a premium for the name than buy Lululemon stock at a massive discount. Of course, I could prove wrong to pass up on Lululemon here, especially if it has a solution to what ails it.
