Adidas Vs Nike Stock: Nike Slips As Adidas Surges

As far as footwear retailers go, Adidas (ETR:ADS) has reigned in Europe for years, but it has always been second to Nike (NYSE:NKE) in the global sportswear market. Yet dynasties hardly ever last a lifetime, and now it seems that Adidas could be on the cusp of an American push that could see the company narrow the longstanding gap it has faced against rival athletic brand Nike.


Adidas stronger position has become increasingly apparent after it’s opponent reported its weakest quarterly sales growth in nearly seven years at earnings call at the end of September. What’s more, at least nine brokerages tracking Nike cut their price targets on the stock after the company warned of a further fall in revenue in its biggest market (the US) following a 3% drop in the first quarter. Shares in the stock plummeted to $51.03 in morning trading following the release of the company’s most recent earnings report, marking Nike’s lowest share valuation since mid June and subsequently rendering the stock the top percentage loser on the Dow Jones Industrial Average (DJI) on Wednesday 27 September.


As such, the current slump in growth faced by Nike allows it’s European rival to narrow in on America’s most valuable footwear retailer. Adidas has continued to snap at Nike’s heels in the global sportswear market, even if the latter’s North American business is still more than three times larger. Yet Nike’s lackluster performance of late will definitely give the German powerhouse a chance to make up some speed. So, let us consider a few reasons why Adidas makes a stronger current investment option than Nike.


Firstly, Adidas’ 27.29% price/cash flow ratio significantly surpasses the industry average of 9.83%. What’s more, it also tops Nike’s 12.08% and subsequently helps demonstrate how much more money the company is making than spending as of late. Additionally, the company’s Current ratio of 1.33 and net margin of 4.75% are both strong for the Footwear and Retail industry, which, along with Adidas’ stellar cash flow, help prove its solid financial position.


As of October 5th, the Adidas stock trades around €194 per share against Nike’s $52. This means that value wise, Adidas is trading at over 30x earnings, which is certainly not great. However, Adidas’ PEG ratio of 1.44 matched the industry average, and although the company’s price/sales ratio of 2.10 sits above the industry average, it is still below Nike’s ratio of 2.58. As such, these figures help to indicate that despite Adidas’ recent run of success, its valuation is still not entirely out of sync.


Futhermore, on the growth front, Adidas is by far outperforming it’s rival, as the following data from Bloomberg explicates:


Adidas AG v NIKE 1 year stock performace. Source: Bloomberg


In the US in particular, Adidas market share has been picking up speed due to the company’s strong focus on current fashion trends within sportwear. Resultantly, in the first eight months of 2017, Adidas’ athleisure emphasis has driven the company’s share of the US market to 11.3% — nearly double the 6.6% share for the same period a year ago. Conversely, Nike’s share in the US dropped from 39% to 37% over the same period.


As a result, Adidas has surpassed earnings estimates in 13 of the last 16 quarters, including eight straight beats, and this trend seems very likely to continue. Following current Zacks Consensus Estimates, Adidas’ earnings are expected to balloon by 48.26% this quarter and skyrocket 42.33% for the year. What’s more, in the current quarter, the company’s sales are anticipated to ascend 19.84%, while 20.22% growth is projected for the full-year. Based on Zacks estimates, Adidas’ revenues are projected to jump to between $25.29 billion and $25.88 billion for the full annum, with sales expected to climb again next year to reach $29.81 billion.


As such, Adidas is currently a Zacks “Strong Buy” stock, as it has been since the beginning of August. Thus, due to it’s current success trend that shows very little sign of stagnation like it’s rival brand Nike, investors might want to move quickly before the stock becomes seriously overvalued.

(By: Kathleen Craig, Research)

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