Why I’m the next big name in sport
By Thompson Clark, Mauldin Economics
Few brands are as universally recognized as this one—
Just a picture of a swoosh, and everybody knows we’re talking about Nike (NKE), the hugely successful sportswear company.
Since the 1970s, Nike has grown from a small Oregon running shoe company to a $ 258 billion global juggernaut. It is therefore not surprising that Nike has handed over astronomical gains to its early investors. The shares have grown almost 1,000 times since the company went public in 1980.
A $ 1,000 investment in Nike in 1980 would be worth over $ 900,000 today. But let’s face it, Nike is a bit of an outlier. Very few clothing companies will ever this to success.
Fortunately, you don’t have to find “the next Nike” to make money in sportswear stocks. Even the most modestly successful businesses can generate huge returns, as I’ll show you in a moment.
In this issue of Smart money mondaywe will also take a look at an exciting Swiss running shoe company that is expected to go public overnight. I think it has the potential to be the next big winner in the sportswear space. But before we get there …
- You’ve probably noticed that sportswear isn’t just for athletes anymore.
Today, people wear running shoes to the office and yoga pants to the grocery store. Lululemon (LULU) has played a big role in this trend. The company practically created the “athleisure” category, as their yoga pants became “everywhere” pants for young women.
Early investors have benefited greatly from this trend. Lululemon’s shares have grown 28-fold since the company went public in 2007.
- Under Armor (UAA) has also become a dominant player in this space…
Former college football player Kevin Plank founded the sportswear company in 1996, selling moisture-wicking shirts in his car. Like Nike, the company has grown by sponsoring college sports teams and partnering with top athletes like basketball star Steph Curry.
Today, the $ 10 billion company sells a full line of athletic clothing, from basketball shorts and hats to fishing shoes. And that translates into big payoffs for investors. Despite a few bumps along the way, Under Armor shares have risen sevenfold since its IPO in 2005.
- Lululemon and Under Armor had a few things in common when they went public.
On the one hand, they weren’t complete strangers. They each made over $ 150 million in revenue when they went public. Yet they still had plenty of room to grow. Today, Lululemon and Under Armor both have over $ 4 billion in annual sales.
This is one of the advantages of owning sportswear brands. They often start out as niche businesses, selling running shoes, yoga pants, or moisture-wicking t-shirts. But they have a lot of room to develop from there. In fact, virtually everyone is a potential customer.
This is why a clothing company that already generates hundreds of millions in sales has the potential to generate billions in sales and thereby enrich investors. Which brings us to the newcomer that I followed …
- Could this shoe company be the next Nike?
May be. But like I said, even if it’s only a fraction of Nike’s success, it could still earn early investors huge returns.
I’m talking about the Swiss running shoe company On, which was founded in 2010 by a group of Swiss athletes and entrepreneurs, including six-time Ironman champion Olivier Bernhard.
As a world class athlete, Bernhard couldn’t find the type of shoe he wanted. So he and his partners decided to do them. The company has already generated nearly $ 500 million in global sales. And my research shows that it still has a lot of room to grow.
- On’s shoes have a pretty distinct look …
Some might even call them a bit of a gadget. But I can assure you that they are not. My wife and I don’t run, but we’re both big fans – we’re each on our second pair. Just like Nike and Under Armor before it, We first designed products for the most serious athletes. Then it spread to the vast market of people who wear running shoes and other sportswear in their daily life.
And just like Nike and Under Armor, We teamed up with a top athlete to help him grow. Tennis superstar Roger Federer invested in the company in 2019. And she now sells a “tennis-inspired” shoe bearing his name.
- On sales have grown 60% in the past year.
To put that in perspective, sales of Lululemon and Under Armor have grown by around 20% per year since their respective IPOs.
Better yet, my research shows that On’s sales could continue to grow by 35% per year over the next 5 years. And in 10 years, he could easily be the size of Lululemon or Under Armor, generating roughly $ 4 billion in revenue a year.
As I mentioned earlier, We’re about to go public any day now, probably at around $ 20 a share. I am very interested in this business. But at this point, I plan to wait for a more attractive entry point.
After all, buying stocks at a low price is essential. And sometimes a stock will crash after an IPO before it skyrockets. And if this becomes the next Lululemon or Under Armor (or even Nike), we want to maximize our profits.
I’ll let you know when it’s time to pull the trigger.
Editor, Smart money monday
Originally posted by Mauldin Economics on September 13, 2021.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.