In a comparison between Lululemon stock (NASDAQ: LULU) and Electronics Arts stock (NYSE: EA), it is suggested that Lululemon is the better pick due to its superior characteristics. Despite being from different sectors, both companies have similar market capitalization and gross profit figures. Lululemon’s lower valuation multiple, coupled with better revenue growth, profitability, and financial position, make it a more favorable investment choice. The article delves into various factors to support the argument that LULU will offer better returns than EA over the next three years.
Since early 2021, both EA and LULU stocks have seen little change, with EA slightly decreasing while LULU has also seen a modest decline. In comparison to the S&P 500 index, EA’s performance has been lackluster, with returns below that of the index in recent years. Lululemon has also faced challenges in outperforming the S&P 500, indicating the difficulty individual stocks have faced in beating the index consistently. In contrast, the Trefis High Quality Portfolio has outperformed the S&P 500 each year over the same period, implying better returns with less risk.
Lululemon boasts a significantly higher average annual revenue growth of 30.1% over the last three years compared to Electronic Arts’ 10.7%. Lululemon’s revenue has experienced substantial growth driven by strong demand in the Americas region, although it has cooled off recently due to changing trends and increased competition. On the other hand, Electronic Arts has seen modest revenue growth with a decline in gaming demand and a decrease in average quarterly playtime. The article provides insight into the companies’ revenue trends and their respective growth prospects.
In terms of profitability and financial risk, Lululemon has the upper hand with a higher operating margin and a debt-free status. In comparison, Electronic Arts has a significant amount of debt and lower cash reserves, indicating a higher level of financial risk. Considering valuation multiples, Lululemon’s lower P/S ratio suggests better growth potential compared to Electronic Arts. With a pickup in demand for its international business and an attractive valuation following a decline in stock price, Lululemon appears to be a more promising investment option.
While Lululemon may outperform Electronic Arts in the next three years, it is essential to consider how Electronic Arts’ peers fare in comparable metrics. The article concludes that Lululemon’s better revenue growth, profitability, and financial position, coupled with favorable valuation multiples, position it as a more attractive investment choice compared to EA. Investors can also explore peer comparisons across industries to make informed investment decisions.
