NIKE, Inc. (NKE), adidas AG (ADR) (ADDYY): Buy These Athletic Footwear Companies

The running market

adidas AG (ADR) (OTCMKTS:ADDYY) is branded well as a European sports shoe, but it has struggled more in the running category compared to NIKE, Inc. (NYSE:NKE). Given that running is a $15-billion market with strong growth (13% in 2011), that’s where Adidas needs to focus its efforts – and that is precisely what management is doing.  Running revenue increased 12% for first quarter 2013, due in large part to the new Energy Boost brand – which won a number of awards and which management clearly views as a game changer. Initial reviews are very positive.

Valuation

For Under Armour Inc (NYSE:UA), the P/E for the trailing-12 months is a very pricey 53.8, and even on a forward basis the ratio is 33.9 – this is not a cheap stock. Given its growth prospects, these numbers seem about right, although the stock is currently a bit too expensive for me. adidas AG (ADR) (OTCMKTS:ADDYY) sits at a P/E of 32.7 for the trailing-12 months, with a forward P/E of 5.8 per Morningstar. NIKE, Inc. (NYSE:NKE)’s P/E ratio is 24.7 for the trailing-12 months and 18.2 on a forward basis.

Foolish conclusion

All three of these companies are worth an investment, based on your investing style and thesis. Under Armour Inc (NYSE:UA) has the best growth prospects, and an aggressive investor with a long-term focus will accept the high valuation for the expected long-term return. NIKE, Inc. (NYSE:NKE) is another great long-term hold, with an entrenched position and plenty of cash to fund marketing and innovation.

With adidas AG (ADR) (OTCMKTS:ADDYY), the major question is whether the Energy Boost is as big of a game changer as management believes it to be. If it represents a significant breakthrough, then sales of the shoes will continue skyrocketing and the company has tremendous growth prospects as it moves into the running market. If not, the company is still in good shape – but with lesser growth prospects than Under Armour Inc (NYSE:UA)and a position less entrenched than NIKE, Inc. (NYSE:NKE). Personally, my money’s on Nike for the long haul – it’s the safest of the three.

Michael Douglass has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour.

The article Buy These Athletic Footwear Companies originally appeared on Fool.com.

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