I get that PE ratio works best when comparing companies in the same industry. But how does Nike, which is more than double the market cap of Adidas, have such a much lower PE ratio? It just doesn’t make sense to me. Does it mean Adidas is way overvalued, or am I missing something here? Can anyone explain why Adidas stock is valued so much higher than Nike?
Nike forward PE = 29, PEG = 4
Adidas forward PE = 28, PEG = 0.6
Looks like Nike is actually the pricier one here.
Will said:
Nike forward PE = 29, PEG = 4
Adidas forward PE = 28, PEG = 0.6
Looks like Nike is actually the pricier one here.
In my opinion, Nikes are like a 5/10 for comfort, while Adidas is more like a 7/10. That’s my kind of valuation!
@Stevie
Sure, but for coolness factor, Nikes are at least a 7/10.
Zephyr said:
@Stevie
Sure, but for coolness factor, Nikes are at least a 7/10.
Honestly, Nike just isn’t what it used to be. Not as ‘must-have’ anymore. Kids these days…
@Stevie
Nah.
@Stevie
But New Balance is a 9/10 for comfort!
Will said:
Nike forward PE = 29, PEG = 4
Adidas forward PE = 28, PEG = 0.6
Looks like Nike is actually the pricier one here.
Yeah, if growth is accurate, do you think Nike or Adidas has better growth potential?
@Peyton
Honestly, only someone who’s studied both companies in depth could answer that. It’s really on you to look into their future cash flow and see what makes sense for you.
Lennon said:
@Peyton
Honestly, only someone who’s studied both companies in depth could answer that. It’s really on you to look into their future cash flow and see what makes sense for you.
Fashion brands are always risky to invest in. What’s popular now can be irrelevant tomorrow. Twenty years ago, New Balance was a ‘dad shoe.’ Now it’s trendy.
@Jessie
Wait, New Balance is fashionable now?
Lennon said:
@Peyton
Honestly, only someone who’s studied both companies in depth could answer that. It’s really on you to look into their future cash flow and see what makes sense for you.
Yeah, and it’s a problem because you’re relying on analysts, and sometimes their claims can be totally out there.
PE is a rough metric and doesn’t work as well at extremes. Basically, the higher the PE, the lower the company’s profit relative to the price.
A few examples:
- Ratio of 10? That’s 10% profit.
- Ratio of 5? 20% profit.
- Ratio of 20? 5% profit.
So with a PE of 166? That’s less than 1% profit.
There are other things too, like debt, which isn’t part of PE. If a company has more debt, that can make the PE seem lower. They might also be investing profits back into growth, which increases the PE as well.
@Shai
> Basically, the higher the PE, the lower the profit
This part confuses me a bit. If Company ABC has a PE of 40 (stock price $200, EPS $5) and Company XYZ has a PE of 25 (stock price $100, EPS $4), ABC has both a higher PE and higher earnings. Isn’t it more about what investors are willing to pay per dollar of earnings?
It also throws me off when people say a company’s PE is forecast to change (like from 25 to 30). Without knowing the cause, it’s tough to judge what that means.
Anyway, between Nike and Adidas, Nike looks more stable on paper, but Adidas’ growth projections are way higher. Never thought Sambas would cost so much, but maybe it’s World Cup vibes?
@Adi
Yeah, PE higher usually means less profit per dollar of stock, assuming other factors are equal. It’s a rough estimate, though. The current PE ratio uses real earnings and price, while forward PE is based on predicted earnings, which aren’t proven yet.
Adidas probably had a big one-time expense on its books recently.
Nike’s had some issues. They made some questionable decisions around and after the pandemic.
I’d guess Adidas might be expected to gain some market share from Nike, which could explain the difference in PE.
For what it’s worth, I took my biggest loss ever on Nike and sold out about four months ago.
@Bevin
Do you think it’s undervalued now and worth buying?
Peyton said:
@Bevin
Do you think it’s undervalued now and worth buying?
Personally, I’m done with Nike. I feel like they’re losing market share and brand loyalty. They might turn things around, but it won’t be with my money.
I sold out and bought AEO instead, and now I’m down 15% on that… Maybe do your own research.
PE alone doesn’t mean much. Look at their price-to-sales, business trends, etc. There are plenty of companies with low PE ratios that aren’t good investments, and some with high PE ratios that are worth it.