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Headlines
- The stock market has recently experienced significant fluctuations, causing concern among many.
- Market corrections are normal, and they can present opportunities to acquire quality stocks at lower prices.
- Lululemon Athletica (NASDAQ:LULU) and Celsius Holdings (NASDAQ:CELH) are two brands that stand out for their potential to weather the current market conditions.
Late July and early August brought considerable volatility to the stock market. The Nasdaq-100 index, which reached a new all-time high in July, experienced a sharp decline of more than 10% shortly afterward. Concerns are growing about a slowing economy and reduced consumer spending in the United States, with some even discussing the possibility of a recession.
It's important to stay calm during these turbulent times. While economic downturns and market corrections can be unsettling, they are a normal part of the financial landscape. Market fluctuations do not follow a straight upward trajectory, and temporary declines can provide chances to acquire quality assets at more favorable prices.
Two consumer brands that continue to perform well despite the market's ups and downs are Lululemon Athletica and Celsius Holdings. Lululemon remains a leader in the athleisure sector, known for its popular yoga pants and leggings. The company has successfully expanded its customer base beyond women in North America, with notable growth in men's athleisure and international markets, particularly in China. Over the last five years, Lululemon's revenue has increased by 162%, reaching an annualized rate of around $10 billion.
However, the company's core market of women in North America has shown signs of stagnation. Last quarter, sales growth in North America slowed to just 3%, with men's revenue growth surpassing that of women's. This slowdown in women's spending, combined with a 50% drop in the company's stock from its all-time high, has raised concerns.
Despite these challenges, Lululemon continues to experience robust growth internationally, with sales rising by 35% year over year last quarter. Although there are concerns about competition from emerging brands like Alo Yoga, Lululemon's recent product setbacks, such as the removal of the Breezethrough line due to unflattering designs, appear to be fixable. With a strong history of innovation and brand loyalty built over 15 years, Lululemon is well-positioned to maintain its leadership in the athleisure market.
Recently, Lululemon's price-to-earnings ratio has dropped to around 20, which is below the S&P 500's average P/E of 28. This lower valuation may indicate that the stock is undervalued, given the company's long track record of growth. Those who acquire shares of Lululemon during this challenging period and hold them for the next five to 10 years may benefit from the company's potential recovery and future success.
