Lululemon Athletica inc. (LULU): What Does Billionaire Stephen Mandel Think?

The retailer now expects 2013 net revenue to come in at around $2.2 billion, representing growth of as much as 22% over 2012. It expects 2013 operating income between $256 million to $258 million, representing growth of 23% to 24%.

NIKE, Inc. (NYSE:NKE) designs and develops footwear, apparel, equipment and various accessories. Although most people consider Nike a shoe company, it’s really much more than that; around 60% of Nike’s revenue is derived from footwear, but some 30% comes from apparel.

Nike managed to beat fiscal third-quarter earnings expectations handily by posting EPS of $0.73, above the Street’s $0.67 estimate. This comes as the future order growth for March to July 2012 grew robustly (up 7%) year-over-year.

After the earnings beat, UBS reiterated its buy rating, noting that gross margins were impressive, as Nike’s gross margin expanded 30 basis points sequentially during the quarter versus UBS’ estimate for a 10 basis-point contraction.

NIKE, Inc. (NYSE:NKE) is also one of the top consumer stocks loved by hedge funds. Although the slowing Chinese economy has caused some concern for companies operating in the region, Nike only derives 12% of its revenue from greater China. Nike gets around 40% of revenue from North America, 20% from western Europe and 16% from the emerging markets. This is unlike Lulu, which gets almost 95% of its revenue from the U.S. and Canada.

Don’t be fooled

All of these apparel companies have solid balance sheets and impressive growth prospects in their respective markets. They all have debt ratios less than 10% and quick ratios above 2.0. However, from a valuation standpoint, Nike appears to be the best bet.

What’s more is that Nike has the lowest volatility, with a beta of approximately 0.9, compared to Lulu’s 2.1 and Under Armour Inc (NYSE:UA)’s 1.5. NIKE, Inc. (NYSE:NKE) would be a solid investment from a valuation perspective, yet Lululemon Athletica inc. (NASDAQ:LULU) could provide solid growth opportunities, assuming it can effectively transition beyond its niche women’s yoga-pants market.

The article Billionaire Stephen Mandel Thinks the Sheerness Issue Is Sheer Nonsense originally appeared on Fool.com and is written by Marshall Hargrave.

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