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

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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.

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