It's a great story. A designer and retailer of yoga wear emerges as one of the hottest apparel companies on the planet, despite a recession that has put a damper on discretionary spending. Lululemon's sales and earnings have doubled and tripled, respectively, since 2009, and yoga pants seem to be displacing jeans and khakis in the casual wardrobe of many suburban moms.
There's nothing wrong with Lululemon's business. The company is well run, and its recent move into children's clothing and athletic wear seems to be a smart one. However, with Lululemon's stock up 62% this year and trading at 63 times earnings, we just don't see a lot of upside. Even a bull like Merriman Capital analyst Kristine Koerber considers the stock "priced for flawless execution" with "little room for error."
Meanwhile, competitors like the Gap (via its new Athleta stores) are entering the yoga clothing market. If Lululemon's market share begins to slide, its stock could quickly contort into a downward facing dog.
Our annual roster of high performers reveals the promising saplings that are rising in a difficult economy and some stalwarts that deliver year after year.
