Investors betting that Nike can regain its footing after a dismal 2016 might want to temper their expectations.
Sure, the stock has been on a roll, rising 11.3% since the start of the year. But the cross-continent rivalry between Nike ( ticker: NKE ) and Adidas (ADDYY) is heating up. Early Wednesday, the German sportswear maker boosted its 2017 sales forecasts and CEO Kasper Rorsted vowed to continue investing heavily in the U.S. in a bid to catch up to Nike.
Wall Street is clearly sending a message. U.S.-listed shares of Adidas climbed 8.5% to $91.72 Wednesday, with shares reaching an all-time high of $92.31 in intraday trading. Nike ended effectively unchanged at $56.51 while Under Armour (UAA) slid 2.8% to $19.14.
This is not the first time that Barron’s has urged caution on Nike. Back in December, we argued that recovering from its 2016 stumble may prove difficult given competitive pressures that hobbled sales and pinched profit margins. And in another story, we noted that Under Armour was a serious force in professional sports in light of its deals with Major League Baseball, Tom Brady, and Golden State Warriors breakout star Steph Curry.
Granted, Nike’s estimate-beating December earnings report offered hope for better times ahead. But with Adidas making a full court press in the ever lucrative U.S. market, Nike now finds itself on the wrong side of President Trump’s protectionist trade policies. Nike makes most of its apparel in China and Vietnam, and Trump, besides scuttling the Trans-Pacific Partnership, has threatened to penalize American companies that rely on foreign labor and imports.
Nike isn’t alone in its suffering. Shares of Under Armour have fallen more than 33% since the start of the year, much of that following its disastrous fourth-quarter earnings report.
But while Under Armour’s stock price has been stomped on, Nike has held up far better. But at 23 times forward earnings, Nike isn’t cheap and a 1.3% yield hardly makes up for an inflated valuation.