In the world of apparel and footwear, there's no doubt that Nike (NKE 0.19%) rules the industry. Thanks to steadily rising revenue and profits, the popular consumer brand has been a fantastic investment to have owned over the decades. The stock has skyrocketed 60,000% since its initial public offering in 1980 (as of Aug. 11). 

But there's a younger rival that's rapidly ascending in the industry. I'm talking about Lululemon (LULU 1.31%). In the past five years, shares of the athleisure pioneer have trounced Nike by a wide margin. And this trend seems poised to continue as we look ahead. 

If you were originally looking at adding Nike to your portfolio, it's a better idea to consider the unstoppable Lululemon instead. 

Stronger financial performance 

The Canadian company's stock has been catapulted by outstanding financial performance. In fiscal 2017, Lululemon posted revenue of $2.6 billion. That figure soared to $8.1 billion in fiscal 2022 (ended Jan. 29). And during this five-year stretch, Lululemon's diluted earnings per share jumped a whopping 252%. These are impressive fundamental gains, especially considering how resilient the financials were throughout the pandemic, supply chain issues, high inflation, rising interest rates, and now during an uncertain economic environment. 

It's also worth pointing out that Lululemon's apparel is on the premium end of the spectrum when compared to Nike, and this affects profitability. Lululemon's gross margin and operating margin were better than Nike's in each of the past five fiscal years. 

While Nike is known for being one of the best marketing organizations in the world, bolstered by deeply inspiring ad campaigns and extremely expensive endorsement deals with top athletes and celebs, Lululemon's approach is totally different. It has relied entirely on a community-driven, grassroots marketing strategy, using local ambassadors to gain exposure for the brand. It has clearly worked, as Lululemon's strong momentum indicates. 

Greater long-term potential 

To its credit, Nike has a much longer history in the industry, having been founded in 1964. Lululemon wasn't founded until 1998. This means that Nike's longevity, at more than twice as old as Lululemon, is a clear indication of how durable the brand has remained. It's hard to envision a world a decade from now where Nike isn't still the most popular brand in sports apparel and footwear. 

However, the truth is that because of its far reach and maturity, Nike just doesn't possess the growth potential that Lululemon does. In the past five years, Nike has increased its annual revenue at a compound annual rate of 7%, lagging far behind Lululemon's 26% clip. This is set to continue over the next five years, too, as Wall Street analysts see Lululemon posting substantially higher growth than Nike. 

Because Lululemon is a far smaller enterprise, its expansion opportunities are larger. For example, in the latest fiscal quarter, the business generated 65% of its overall sales in the U.S., leaving international markets ripe for growth. "Our new store openings in 2023 will include 30 to 35 stores in our international markets with the majority of these being planned for China," CFO Meghan Frank said on the first-quarter 2023 earnings call. 

Nike generated $1.8 billion in revenue from the Greater China region in its latest fiscal quarter (fourth-quarter 2023 ended May 31), compared to just $250 million for Lululemon, leaving a big opportunity in the country. 

Lululemon is also pushing more into the footwear category, while continuing to expand its offerings for men. These should prove to be meaningful business drivers. 

A better stock to own 

Better past growth, coupled with greater potential, means Lululemon's stock is in a position to outperform Nike's going forward. This viewpoint is bolstered by the fact that shares of Lululemon are trading hands right now at a forward price-to-earnings (P/E) ratio of 32, only slightly more expensive than Nike's forward P/E of 29. 

As the undisputed leader in the industry, Nike rightly gets all the attention. But investors need to seriously consider Lululemon as the better investment candidate.