Which Is A Better Investment: Nike Or Peloton?

In the COVID-19 bounce-back, these two stocks have proven their mettle. With long term prospects looking up, we provide the bull and bear case for both.

No stock has been left unaffected during COVID-19 and both Nike (NYSE: NKE) and Peloton (NASDAQ: PTON) have seen the good, the bad, and the ugly of this quarantine-filled quarter. Nike was forced to close all of its stores in its three biggest markets: China, the U.S., and Europe, whilst Peloton was forced to cancel and refund orders for its treadmills as the size of the running-based apparatus prevents a no-contact delivery. 

However, things are looking up for these two fitness fanatic brands, as Peloton is currently trading higher than pre-COVID-19 levels and Nike reaps the rewards of digitalization. So we ask, which is a better investment: Nike or Peloton?

Nike: Bull vs Bear

Lululemon Athletica (NASDAQ: LULU), Adidas, and Under Armour (NYSE: UAA) look tiny in comparison to the scale of Nike’s operations. So, for the average joe, Nike seems like the biggest and — possibly — the best athletic clothing company out there. 

This is certainly true in China more than in any other country being Nike’s fastest-growing segment, particularly now when the majority of China’s stores have reopened and foot traffic is increasing. Nike is now focused upon rebuilding this important relationship that generated $6.2 billion in revenue during fiscal 2019. In the long-term, Nike plans to use the same playbook for the reopening of its stores across Europe and the U.S.

Nike has also been building up its digital services, offering its Nike Training Club app on a 90-day free trial back in March. This encouraged people to use its app and engage with the brand whilst other forms of brand visibility — such as in major sporting leagues — have been missing from the public eye. In its last quarterly earnings, Nike reported a 30% increase in online sales.

Just look at our returns versus that of the S&P 500! Click here to find out how we continue to beat the market and view the list of stocks we think will turn out to be the next Amazon, Tesla, or Netflix!

The numbers for Nike are looking up too. It has recouped much of its losses since the market crash in mid-March, now only about 5% off its January high. Its $0.18 EPS leaves much to be desired at the moment, but going into the next quarter predictions are back on the same levels of last year at $0.70.

There is not much of a bear case for Nike other than analysts’ predictions of a 10% fall in earnings for fiscal 2020. However, in a sort of rally-cry, Wall Street analysts are betting on a 30% gain in 2021.

Peloton: Bull vs Bear

Peloton is no stranger to controversy, the advertisement fiasco before Christmas last year brought the brand name to the lips of many aspiring fitness junkies, housewives, and outraged ‘Karen’s’. Despite that, its fiscal Q2 results beat out expectations with a loss of only $0.20 per share versus the $0.36 loss predicted. Coming into Q2, Peloton saw its share price drop due to its more conservative estimates of growth.

Currently, analysts remain bullish on this home-workout software stock. Stay-at-home stocks have been riding the corona-wave and Peloton is up there with the likes of Netflix (NASDAQ: NFLX), Zoom (NASDAQ: ZM), and Slack (NYSE: WORK). Its Q3 earnings exceeded expectations with a 66% surge in revenue and a doubling of its connected fitness subscribers to 886,100. With almost 20% of its sales now being online subscriptions, Peloton had a very good quarter.

The outlook for Peloton is bright, its own estimates expecting this quarter to see a revenue increase of 128% from the same period last year, while its fiscal revenue for 2020 is expected to reach $1.72 billion, jumping 90%.

On the other hand, investors should keep in mind that Peloton’s IPO was last September, meaning that it is a young company in the public sphere and particularly vulnerable to market fluctuations. Although the market cap currently sits at roughly $12 billion, its trailing 12-month sales are $1.44 billion with a negative cash flow of $129 million. COVID-19 may have given this stock momentum, but what happens when the fad ends?

So which stock should I buy?

In the end, Nike has the strongest fundamentals, it is a household name and it has a plan for getting back on track as the coronavirus pandemic dies down. Peloton on the other hand is exceeding expectations and proving itself to be a growth stock for now. In the end, it comes down to a choice between Nike’s slow, steady, and guaranteed growth versus Peloton’s riskier, high growth potential in the short term.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.