The aggressive 2017 targets set by new Adidas' (ADDYY) CEO Kaspar Rorsted has sent shockwaves through the sports apparel industry.
Quite naturally then, investors are anxious about Nike's future after its stock fell more than 18% in 2016. However, investors shouldn't look at Adidas' sudden growth spurt as a threat to Nike's long-term outlook.
Nike's incredibly robust brand identity, massive scale, and all-round dominance in a diverse range of product categories ensures that it will be no pushover.
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No matter the stiff competition from Adidas, Nike has outperformed its rival every year over the last five years. Sales gained almost 10% annually to more than $32 billion by the end of 2016. Net income also increased by an impressive 12% compound annual growth rate.
Beyond the numbers, Nike's sheer brand muscle is undeniable. As the leading company in sports apparel, Nike has redefined fashion for decades. It is also among the few bricks and mortar retailers to have shaped a rock-solid e-commerce presence.
For Adidas to break in deeper into the U.S. sportswear market and steal market share from Nike, Nike will have to struggle mightily with its footwear and apparel innovation. That is unlikely. Moreover, keep in mind that Adidas only has a 10% share of the U.S. market compared to Nike at 45%.
While Nike's valuation is steeper compared to Adidas, it's well-deserved. And as Nike proves that it could fend off its rival, the valuation gap may grow further and push Nike's shares higher.
The author is an independent contributor who at the time of publication owned none of the stocks mentioned.
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