Welcome to ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!

Canadian Stock: Aritzia Inc. (ATZ)

Aritzia Inc. (ATZ) is one of the fastest consumer brand companies in North America. ATZ has managed to build a great brand among women consumers, allowing the company to grow its revenue by around 21% organically on average over the last five years.

Despite facing a headwind in recent years in managing inventory and a slowdown in sales growth due to weak consumer spending in the last two years. That being said, ATZ has now fully recovered and has been on a solid path to achieving its growth and profitability trajectory previously. The consensus estimate expects ATZ to grow its topline by double digits over the next few years.

ATZ is still early in its growth phase. Going forward, ATZ is expected to expand the international market, which would drive long-term growth. As a result, the company did not have a very attractive capital returns program in terms of dividend and share repurchases yet; this is largely because ATZ is reinvesting heavily into store expansion and building more capacity to grow over time. We think the capital allocation policy towards growth is appropriate for a young company like ATZ. The company trades at a reasonable valuation of 24.9X forward earnings, a fair valuation relative to the company’s historical averages but on par with the overall industry. We think if the company can continue to execute its growth playbook, shareholders will be well-rewarded from here.

US Stock: Lululemon (LULU)

On the other hand, Lululemon (LULU) also operates as one of the most desirable consumer brands in the niche apparel market, including yoga, running and training. LULU has become one of the most recognizable brands in the consumer discretionary space, which allows the company to price its products at a premium price compared to other brands.

The company still barely touches the surface when it comes to emerging market opportunities. The addressable market of this niche is huge, and LULU can continue to grow at a very healthy rate over the long term. Similar to ATZ, LULU’s growth has been struggling in the last few years, which is largely a macro issues that affect consumer spending on discretionary items in general.

LULU has a very solid balance sheet with healthy cash flow generation; the company also started to repurchase shares at a more aggressive pace recently to take advantage of the discount in valuation. LULU has the potential to become a global brand if the company executes well. LULU is trading at 26.6x Forward P/E, we see this valuation multiple is a fairly attractive one given its growth forecast and historical trading averages.

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