Lululemon Athletica inc. (LULU), Nike Inc (NKE): Can This High-Flying Retail Stock Score New Highs?

Lululemon is on an impressive growth track, but the company also faces considerable risks. For one, consumer tastes are fickle, and nobody can say how long Lululemon’s image will resonate with consumers before brand fatigue sets in. Many other well-known brands compete in this space, and others could enter.

In addition, Lululemon depends on its overseas suppliers for production and does not have any patent protection on its production processes or the materials it uses. Rising labor costs in China, where Lululemon makes more than one-third of its products, could also cut into its earnings. Not only that, but the company’s earnings overseas have to be reported in U.S. dollars, and fluctuations in exchange rates for the Canadian dollar and other currencies could affect its earnings.

Risks to Consider: As a growth stock, Lululemon plows its earnings into its expansion efforts instead of paying a dividend. At a price-to-earnings ratio of nearly 40, LULU is pricey — but long-term investors will be rewarded if the company’s plans for growth take off.

Action to Take –> As the economy continues to recover, this stock, with a beta above 1.0, is also likely to outperform the overall market. The average analyst price target is $77, according to Bloomberg.

P.S. — It’s not farfetched to expect awareness of health and fitness issues to continue to rise — but you may be surprised by our latest report, “The 11 Most Shocking Investment Predictions For 2014.” Our previous predictions have given investors 89%… 92%… 293%… and even 310% gains in a year. To hear our latest, click here.

– Poonkulali Thangavelu

The article Can This High-Flying Retail Stock Score New Highs? originally appeared on StreetAuthority and is written by Poonkulali Thangavelu.

Poonkulali Thangavelu does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.