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2 Stocks That Offer an Easy Path to Wealth Building

By John Ballard - Oct 23, 2021 at 7:50AM

Key Points

  • Etsy's acquisition of Depop could lead to significant market share gains in apparel.
  • Only 16% of Lululemon's business comes from international sales.

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These stocks have clobbered the market's return in recent years and still have enormous growth opportunities ahead.

One of the easiest ways to build wealth in the stock market is to stick with growing companies that still have enormous room to keep expanding.

When considering the growth opportunities in front of Etsy ( ETSY -5.57% ) and Lululemon Athletica ( LULU -1.32% ), it's hard to imagine these stocks not earning investors market-beating returns over many years.

Let's dive in and take a closer look at why these two stocks offer an easy path to building a great investment.

A stack of coins behind a clock.

Image source: Getty Images.

1. Etsy

E-commerce is expected to grow nearly 50% to over $7 trillion in sales by 2025, according to eMarketer. Etsy is a great stock that should profit from this trend because it is growing off a small base of revenue and has proven its staying power, even during the pandemic.

Over the last five years, annual revenue has nearly quintupled to $2.1 billion through the second quarter on a trailing-12-month basis. Despite the difficult comparisons with the triple-digit percentage revenue growth rates in 2020, Etsy saw a 61% increase in repeat buyers last quarter that contributed to a 31% year-over-year boost in gross merchandise sales excluding face masks. This growth is even more impressive considering that more brick-and-mortar stores were open this year than in the year-ago quarter.

Etsy had an enormous advantage during the pandemic that should continue to serve it well going forward. With retail inventory running short a year ago, Etsy sellers were there to ship items quickly to meet demand, which contributed to the company's momentum. That could still play to Etsy's advantage in the near term given the port congestion that is expected to plague the retail industry this holiday season.

Beyond 2021, one opportunity to watch is apparel, where the recent acquisition of Depop could lead to significant gains in the secondhand clothing market, which is expected to double to $77 billion by 2025. 

All told, the growth of e-commerce should make Etsy an easy layup for growth investors. 

2. Lululemon Athletica

A recent survey by Lululemon showed that a high percentage of consumers in the Asia-Pacific region want casual clothing to become the new normal at the workplace. Lululemon is known technically as an athletic apparel brand, but its "Science of Feel" approach to designing workout clothing is perfectly suited to everyday wear, too.

Lululemon has successfully expanded its product line in recent years, especially with respect to its Office Travel Commute and On The Move collections. A recent check of best-sellers for men shows regular pants, polos, and joggers instead of traditional workout items at the top of the list. It's an example of why it's too limiting to label Lululemon an athletic apparel company. Its market opportunity is ultimately much bigger than the estimated $350 billion value of the sports apparel market, and the recent survey by the company shows why.

In the near term, Lululemon could leave some revenue on the table, depending on how supply shortages impact holiday sales. But Lululemon should be fine and any sell-off related to this headwind should be a good opportunity to buy this apparel stock on sale. The company reported an 88% year-over-year increase in revenue in the most recent quarter, but sales would have been even higher if not for factory closures in Vietnam and ongoing congestion at the ports. 

Looking further out, investors should be excited that only 16% of Lululemon's total revenue comes from outside of North America. With Nike, international revenue makes up 60% of total revenue. Lululemon continues to see faster growth internationally than at home, which points to potential multibagger returns for investors who buy and hold this top apparel stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Etsy, Inc. Stock Quote
Etsy, Inc.
ETSY
$259.28 (-5.57%) $-15.30
Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$448.43 (-1.32%) $-5.98
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$166.70 (-1.50%) $-2.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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