The Gap Inc. (NYSE:GPS) has been a great turnaround play over the last two years. This year alone shareholders have been treated to a return of over 35% on the back of strong earnings and renewed growth. The company has worked hard to reshape its image, and in the process created a great selection of yoga apparel. The company retails its yoga pants for about $50, almost half the cost of a pair from Lululemon. I fully understand the value of brand power, but still a 100% price difference is significant. Gap is trading at far more conservative forward multiple of of 15.42–rather inexpensive when you consider analysts are expecting the company to grow earnings at 16% this year. In addition, I like the international growth prospects ahead. The company to plans to open a net 80 stores this year, primarily in its Asia/Pacific business segment. An expansion into China should bode well for the company over the longer term.
At these levels Lululemon Athletica inc. (NASDAQ:LULU) looks far to0 risky for my portfolio. The company could possibly be heading into a period of substantial growth slowdown as a result of internal affairs and outside competition. I would rather see investors choose companies like Nike and Gap, which are far less expensive and offer a more diversified line of products.
Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica and Nike. The Motley Fool owns shares of Nike. Nathaniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Who Doesn’t Like Yoga Pants? originally appeared on Fool.com and is written by Nathaniel Matherson.
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