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Should You Buy Adidas (ADDYY) Stock As It Passes Jordan Brand?

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Nike (NKE - Free Report) stock dipped on Tuesday after the company received two significant analyst downgrades, and one of the biggest reasons for this cautionary stance is based on increased competition from one sportswear power in particular: Adidas (ADDYY - Free Report) .

On Monday, market research firm NPD Group reported that Adidas passed Jordan brand as the second-most popular sneaker in the U.S. Through the first eight months of the year, Adidas claimed 11.3% of the U.S. shoe market, up from a 6.6% share in the year-ago period. "I've never seen a brand in the sneaker industry grow this fast," NPD analyst Matt Powell said.

Jordan’s market share was nearly unchanged and hovers at 9.5%. Nike’s market share fell 2% but still dominates the overall U.S. market, claiming 37% of U.S. shoe dollars.

The German brand is the number two sportswear company in the U.S., but Adidas’ impressive American growth might signal that it is poised to one day overtake Nike at the top of the sports apparel world.

Now, let’s take a look at Adidas’ stock and some of the company’s current fundamentals to see if investors should consider the Bavarian sportswear power as Nike begins to stumble.

Fundamentals

Adidas is currently a Zacks Rank #1 (Strong Buy) stock, as it has been since the beginning of August. The company also sports “B” grades for both Growth and Momentum.

Adidas’ 27.29% Price/Cash Flow ratio blows away the industry average of 9.83%. It also tops Nike’s 12.08% and helps demonstrates how much more cash the company is racking up than shipping out right now. Also, the company’s Current Ratio of 1.33 and 4.75% Net Margin are both strong for the industry, which, along with Adidas’ stellar cash flow, help prove its strong financial position. 

Value wise, the stock is trading at nearly 30x earnings, which is not great. However, Adidas’ PEG ratio of 1.44 matched the industry average, and although the company’s 2.10 P/S ratio rests above the industry average, it is still below Nike’s 2.58. Both of these figures help to show that despite Adidas’ run of success, its valuation is not entirely out of whack.

Adidas has surpassed earnings estimates in 13 of the last 16 quarters, including eight straight beats, and this trend seems likely to continue. According to our current Zacks Consensus Estimates, Adidas’ earnings are expected to pop by 48.26% this quarter and skyrocket 42.33% for the year.

In the current quarter, the company’s sales are expected jump 19.84%, while 20.22% growth is projected for the full-year. Based on our estimates, Adidas’ revenues are projected to jump to between $25.29 billion and $25.88 billion for the year. Sales are expected to climb again next year and reach $29.81 billion.

Stock Movement

Despite tough times for the overall retail market, Adidas operates in the “Shoes and Retail Apparel” industry, which sits in the top 26% of the Zacks Industry Rank.

The sportswear giant’s 41.18% 52-week price change is outstanding and looks even better compared to the industry average of 2.78%. Adidas stock has soared from $82.38 per share a year ago to rest near its all-time high of $118.15, which it reached last week.

Although Adidas has also experienced a 50.48% year-to-date price change and only recently broke through a new-high, the company might still have room to grow.

Adidas has received two upward earnings estimate revisions for this quarter within the last 60 days. In that same time frame, the company received one positive revision for next quarter, three for its full-year, and two for the following year.

Bottom Line

In 2015, Adidas claimed only 4% of the U.S. shoe market by dollar value. Then, the company began to make some big changes, which included hiring a new CEO and collaborating with popular recording artists Kanye West and Pharrell Williams.

With a new brand focus and direction, Adidas has slowed chipped away at Nike and Jordan, while also building its own revamped cultural cachet in the U.S.

Adidas has been king of Europe for years, but it has always been second to Nike in the global sportswear market. But sports dynasties don’t always last, and now it seems that Adidas could be on the cusp of an American push that could see it close the gap with Nike.

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