Adidas AG is beating Nike Inc. on Wall Street recently, with shares that have gained 21.87%, so far this year, compared to 16.92% for Nike.
Adidas shares have also outperformed the overall market, while Nike’s shares have moved in line with the market.
Comparing the two stocks is tricky, though. While Nike has outperformed Adidas over a three-year period, the company lags behind its competitor over a five years period.
At any rate, Adidas has emerged as a serious contender of Nike both on Wall Street and Main Street.
In several ways.
One of them is the expansion of the scale and scope of its operations, which now consist of Adidas, Reebok, TaylorMade and Runtastic, which has pushed Adidas’ gross margins well above those of NIKE’s–see chart. That’s something Wall Street keeps a close eye on.
Then there’s marketing buzz targeting the “innovators” and “early adopters,” consumers in the 15-30 age range, with new products that create instant sales bonanzas. NMD R1, for instance, sold 400,000 pairs on launch day alone. Ultraboost sold 11,000 pairs in the first hour.
Marketing buzz is also fueled by the innovative ways Adidas makes its products. Like its Yoga Collection, which is made from recycled ocean plastic. And its AlphaEdge 4D sneakers, which is made by using light and oxygen through a process called Digital Light Synthesis.
Adding to the buzz are collaborations and partnerships with celebrities and companies such as Pharell Williams, Run DMC, Kanye West, Bape, and Beyonce.
To be fair, Nike has also expanded its scale and scope of operations over time by adding new brands. It has launched effective buzz marketing campaigns with both innovative products and celebrity endorsements and collaborations. In fact, Nike beats Adidas in Google searches—see table.
Google Search Results Adidas vs Nike
Meanwhile, equity analysts rave about Nike’s strengths and business strategy. “Some of the biggest strengths that Nike has shown in recent years are its innovation, product creation and deepening of one-on-one connections with its customers,” says Haris Anwar, Senior Analyst at global financial platform Investing.com. “The result of these efforts is that Nike is grabbing a greater market share from its main European rival, Adidas, even in its home market.”
Nike’s strategy has been more successful in Europe, according to Anwar. “By applying this focused strategy, Nike has been able to attract younger customers in European fashion hubs such as Paris and Berlin. In the most recent quarter when the company’s growth in North America didn’t meet analysts’ expectations, its sales continued to expand in Europe, the Middle East and Africa, showing a greater penetration.”
That’s why he thinks that Nike is a more promising investment going forward than Adidas. “Due to Nike’s better execution of its marketing strategy, its growing online sales and its greater brand appeal to a younger audience, its shares offer much better long-term value than Adidas.”
Dr. Joseph Belmonte, author of Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection, likes Nike, too. “When we look at Nike we can see that it has a Clean Surplus ROE of 17% projected for 2019,” he observes . “It’s averaged a bit over 17% for the past 8 years or so which tells us that this company is operating more efficiently than the average company in either the Dow or the S&P whose stocks average a Clean Surplus ROE of 13.5%.”