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  • James Dunne

2 Companies We Would Have Passed On In A Pitch Meeting

Not all successful companies sound like a good idea when they're first pitched…

Photo by Thomas Drouault on Unsplash

It’s a simple fact of life that, sometimes, a great investment only looks so great in retrospect.

Take Amazon (NASDAQ: AMZN), for example. When the company went public at $18 a share 22 years ago, its S-1 could hardly articulate how an online bookstore would go on to become one of the most influential companies of the 21st century to date.

If you had been the head of a large investment fund back then, do you think you would have envisioned that this company which had just recorded net sales of $15.7 million for the fiscal year 1996 would go on to become one of hit a market cap of $1 trillion and annual revenue of over $230 billion.

On a recent episode of the Stock Club podcast, the MyWallSt team chatted about two more recently successful companies that we see on the market today that we probably would have passed on if we were pitched them in a meeting:

1. Lululemon

Lululemon is a Canadian-based athleisure company that is bucking the trend amongst fashion retailers.

At first glance, the idea of a fitness-apparel retailer charging anywhere from $100 to $200 for a pair of yoga pants doesn’t seem like the most unimpeachable of business ideas. It’s hard to ignore the looming threat of a larger and more established company like Nike (NYSE: NKE) just coming along and rolling them over.

Despite this, however, Lululemon has been a huge success so far. Unlike competitors in the industry such as Under Armour (NYSE: UAA), Lululemon has positioned itself as a vertically-integrated company, managing to carefully control their distribution to the customer.

For marketers, Lululemon is the perfect example of selling a lifestyle through its products, commanding a strong brand presence and building a loyal community following that allows them to charge a premium price. As former CEO Laurent Potdevin said, “It’s so much more than apparel, it’s about people. It’s an investment in people, giving them their best life, personal development and creating an incredible product that allows them to live their life.”

And speaking of CEOs, Lululemon’s growth is all the more impressive when you consider the revolving door of chief executives they’ve had.

In the past 5 years, the stock has grown more than 350% with big plans for rollouts into the men’s apparel space and also China. Indeed, in the company’s last quarterly earnings report, Lululemon reported 70% market growth in China and said that it was on track to open as many as 15 stores in China this year.

This all falls into Lululemon’s larger plans to quadruple its international revenues by 2023, with a particular focus on expanding across China, as well as the Asia-Pacific and Middle East regions.

Not bad for the sellers of literal fancy pants!

2. Stitch Fix

A relatively new kid on the block, Stitch Fix pitches itself as an “online personal styling service”. Basically, it's a business that sends out boxes of clothes — or “fixes” as they call them — to customers based on a style profile they fill out. Customers keep for the clothes they like and send back the ones they don’t.

This subscription-type clothing is not exactly a new idea, with other companies in the retail space like Nordstrom (NYSE: JWN) and Under Armour trialing similar subscriptions with limited success.

Indeed, the main reason for our skepticism on first hearing about Stitch Fix was the assumption that a larger competitor would just come in and steal the idea, similar to what Amazon did with Blue Apron (NYSE: APRN).

However, it’s important to categorize that Stitch Fix not as an online fashion company, but as a data company that’s shipping fashion. Once you do this, it completely changes the face of the investment thesis.

Using customer data to figure out what they want, Stitch Fix is constantly perfecting its A.I. capabilities to build a world-class recommender system. Indeed, such is the caliber of Stitch Fix’s system that it prompted one of the world’s leading authorities in the field, Professor Barry Smyth, to single it out as an example of excellence from a lesser-known company (for more on this, check out our comments on Stitch Fix in the MyWallSt app).

Alongside this recommender system and a future-relevant subscription business model, Stitch Fix has a great founder and CEO in Katrina Lake — the youngest female founder ever to take a company public.

Of course, it’s still early days for the company, but the share price has doubled since floatation just under 2 years ago. In the long run, Stitch Fix looks like it could be a big winner.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon, Lululemon, Nike, Stitch Fix, Under Armour. Read our full disclosure policy here.

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