This “A-Rated” Stock Should Be a Long-Term Winner

Lululemon Athletica (NASDAQ:LULU) is on quite a roll. As most retail clothing companies are struggling to keep their stocks afloat, LULU stock is on a tear. It’s up more than 80% in the past 12 months, which is really something in this sector.

Most companies are just busy trying to balance their legacy brick-and-mortar operations with a more robust online presence.

The thing is, a storefront is a totally different kind of retail than online sales. There are only so many stores on a street and only so many important places to put a store.

Online, you have to carve out your territory amidst all your competition. This is the big challenge for retailers of all sizes. First they have the competition that they’ve always had in whatever niche they’re in.

And now, they have to compete against stores that may only exist online and offer products for a very specific demographic that may eat into an existing retailer’s market share.

Somehow, LULU stock has navigated through these challenges and come out the other side a much stronger company with a very exciting future.

How LULU Stock Stands Out

Perhaps since it didn’t expand too quickly, it didn’t set up too many brick-and-mortar stores. Some of that may have to do with the fact that it’s products aren’t cheap and the means the stores were put in strategic areas where high-net-worth people — and those who aspire to be (or look like) high-net-worth people — shop and live.

Also, having staked out a specific market from the start, it has been able to stay focused on success within that model while also strategically branching out into broader collections. And now, as “athleisure” — sports clothes that are now worn as leisure wear — becomes the new fad, Lululemon is well-placed to be one of the top beneficiaries.

The invitation-only ICR Conference in Florida earlier this week focused the hot new consumer trends. A portion of the show was dedicated to discussion of retail clothing and accessories. While most of the standard names were discussed as bad examples of transitioning to e-commerce and dynamic retailing, Lululemon was a standout for the future.

As a matter of fact, earlier this month both MKM Partners and Cowen have named LULU stock as one of their top companies for the year. And it didn’t hurt that Lululemon also raised guidance for the year as well.

One of their key reasons for their bullish stance was the fact that it’s very difficult to find LULU products discounted anywhere.

That allows significant pricing power and it helps keep margins high. Part of the reason this is possible is because the economy is strong and people that may not have been pulling the trigger in Lululemon stores are now less concerned about the cost. If the economy doesn’t continue its upward path or starts to slow, this trend may get bumpy.

But my Portfolio Grader still has LULU as an A-rated stock and it will be a long-term winner regardless of what happens in the short term.

— Louis Navellier

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Source: Investor Place