A Footwear Play For Safety And Growth: NIKE, Inc. (NKE), Under Armour Inc. (UA), Dicks Sporting Goods Inc. (DKS)

Page 1 of 2

NIKE Inc. (NKE)NIKE, Inc. (NYSE:NKE) is the world leader in athletic footwear, athletic apparel, and accessories. In fact, NIKE, Inc. (NYSE:NKE) is so dominant when it comes to footwear that industry analysts estimate that the company has a 50% market share, meaning they sell as many athletic shoes as all of their competitors combined. NIKE, Inc. (NYSE:NKE) has performed very well over the past decade or so, more than doubling their revenue and tripling the share price. My question is whether NIKE, Inc. (NYSE:NKE) is still a growing company worthy of new investment, or if one of its up-and-coming competitors, such as Under Armour Inc. (NYSE:UA) is the way to go.

As far as footwear goes, I believe NIKE, Inc. (NYSE:NKE) is about as big as it is going to be. Where there is significant opportunity for growth is in apparel, which is a much larger market than footwear, estimated at around $100 billion annually. NIKE, Inc. (NYSE:NKE) also plans to double its direct-to-consumer business within five years, significantly grow its developing market business, and to grow its affiliated brands, such as Cole Haan, Converse, and Umbro.

In both the footwear and athletic apparel sectors, consumers tend to gravitate towards the latest in trends and technology. For this reason, NIKE, Inc. (NYSE:NKE) stresses R&D and is not stingy with its advertising spending, which it sees as a way to create or develop trends. For example, last year NIKE, Inc. (NYSE:NKE) spent $2.4 billion on advertising and promotions alone.

When researching Nike, what was most surprising to me was the pricey valuation attached to Nike shares. Nike trades at 24.7 times TTM earnings and 20.9 times forward earnings. Consensus estimates call for a forward growth rate of around 12.8%, which is substantial, but a little low for a company trading at such a premium. This seems mildly overpriced, so let’s take a look at alternative ways to play the sector.

When it comes to athletic apparel and footwear, the logical alternative is another large manufacturer such as Under Armour Inc. (NYSE:UA). You could also possibly play it by investing in a company that sells Nike’s products, such as Dicks Sporting Goods Inc. (NYSE:DKS).

Under Armour Inc. (NYSE:UA), which is one of my personal favorites, trades at 31.9 times forward earnings, however is expected to grow at a 25% rate going forward. You can read my full thesis on Under Armour Inc. (NYSE:UA) here, however my general philosophy is that there is so much room to grow. Under Armour Inc. (NYSE:UA) has one of the best reputations for quality, even more than Nike in my opinion, and they have barely penetrated the $12 billion “active use” apparel market, having just introduced cotton apparel to its product lines less than two years ago.

In terms of their respective products, it is like comparing Apple Inc. (NASDAQ:AAPL) and Hewlett-Packard Company (NYSE:HPQ) laptops. You can probably get a similarly equipped model from HP for half of the price; however the quality of Apple’s laptops is simply unmatched. Such is the case here with Under Armour Inc. (NYSE:UA)’s products.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!