• Athleisure is a term for comfortable athletic apparel.
• Lululemon began the athleisure trend in the 2010s, and the sector has continued to grow.
• As athleisure became increasingly popular in the years leading up to 2020, it provided substantial gains for growth investors.
• Unfortunately, the rapid rise of athleisure stocks between 2017 and 2020 created high downside risk.

Athleisure is a hybrid style of athletic clothing typically worn as everyday wear. Athleisure outfits can include yoga pants tights, sneakers, leggings and shorts that look like athletic wear, characterized as “fashionable, dressed-up sweats and exercise clothing”. Since the 2010s, it has become more common to wear gym clothes outside the gym, whether the wearer is exercising or not.

Athleisure can be considered as a fashion designer movement, enabled by improved textile materials, which allow sportswear to be more versatile, comfortable, and fashionable

Understanding Athleisure

Athleisure grew out of the dynamic use of the yoga pant. Although yoga pants were designed for the gym, their comfort and simple look led women to start wearing them in casual and formal settings. Initially popularized by women, athleisure has branched into men’s clothing as well. Additions to the athleisure lineup include leggings, tights, sweatpants, sneakers, hoodies, and jackets. Improved textiles have allowed sportswear to become more versatile, comfortable, and fashionable.

Benefits of Athleisure

As demand for athleisure apparel increased during the mid- and late-2010s, the athleisure sector provided opportunities for growth investors. Growth investors prefer new products, new companies that have strong earnings growth, and stocks that frequently hit new highs.

Criticism of Athleisure

The meteoric rise in the stock prices of many athleisure companies since 2017 has created a high degree of potential downside risk. There are the usual reasons for concern that value investor would site. These include high P/E ratios and relatively new firms without long track records.

There were also potential issues with athleisure from a long-term growth point of view. Market leader Lululemon Athletica already had a market capitalization of over $40 billion by early October 2020. That compared with nearly $200 billion for much better established Nike (NKE). While that still leaves room for growth, those expecting a repeat of Lululemon’s near tenbagger performance between 2017 and 2020 are likely to be disappointed.1

A stunning performance in the near past could lead to other problems for athleisure stocks. Some of the better technical indicators, such as RSI, flashed warnings in August 2020 before a September correction. From a longer-term perspective, legendary growth investor William J. O’Neil cautioned that most of the money is usually made in the first two years, followed by mediocre returns or a bear market.

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