From late-2015 to late-2017, shares of Nike Inc (NYSE:NKE) were stuck in neutral. NKE stock struggled to hold any gains above the $60 mark, and it kept bouncing back to the $50 level.

Why? Adidas AG (ADR) (OTCMKTS:ADDYY).

Adidas jumped on the retro trend and became the hottest brand in athletic retail. They also utilized big-time, non-athlete celebrity endorsements (like Kanye West) to branch away from an athletic retail focus and create a lifestyle brand with universal appeal.

Nike lost market share. And NKE stock sunk.

Recently, though, Nike started fighting back with its own Consumer Direct Offense initiative, which includes streamlining global investment, accelerating product innovation and pushing direct-selling channels. Those operational changes have paid off. Nike is making a comeback. And NKE stock has been roaring higher.

But I think it’s time to hit the pause button on the rally in Nike stock.

Nike is back. But Adidas hasn’t gone anywhere. If anything, Adidas is only getting stronger. NKE stock isn’t priced for that reality. As such, competitive threats create legitimate valuation risks for NKE stock.

Here’s a deeper look.

Adidas Remains Red Hot

Nike is definitely making a comeback. This is best evidenced by management saying in last quarter’s earnings report that the North America business — which has been losing market share to Adidas for several consecutive quarters — is nearing a critical inflection point.

That got investors excited. NKE stock rose after that earnings report.

But it’s tough to imagine that Nike will become as dominant as it once was. After all, even though Nike is heating back up, Adidas is still red hot.

Revenues at Adidas rose 19% last quarter. They were up 22% at the Adidas brand. Both of those marks represent growth acceleration from last quarter and last year. Last quarter, Adidas company revenues rose 12% and Adidas brand revenues rose 13%. In the year ago quarter, Adidas company revenues rose 14% and Adidas brand revenues rose 18%.

Growth is actually picking up at Adidas. So long as that remains the case, Nike will have a tough time becoming as dominant as it once was in the athletic retail market.

Watch Out for Drake!

Rumors have been circulating the internet that hip hop artist Drake is going to jump ship from a Jordan Brand partnership to an Adidas partnership. If that happens, Adidas could remain red-hot for a lot longer.

Adidas stole hip hop artist Kanye West from Nike back in 2013. In 2015, Kanye and Adidas launched the first Yeezy Boost sneaker. Perhaps not coincidentally, around the same time, NKE stock started heading sideways while ADDYY stock started its multi-year climb higher.

Anyone who knows athletic retail will tell you that Kanye West had a lot to do with Adidas’ resurgence. The company is pioneering an era of athletic retail where it’s not all about the athletes. They are taking athletes and meshing them with musicians and actors to create a lifestyle brand with global appeal (if you’re confused, see this commercial).

Kanye West is a major part of that movement. And Drake, as one of the world’s most famous rappers and who has a ton of high-profile NBA friends, would give that movement some serious firepower.

Bottom Line on NKE Stock

NKE stock went nowhere for 2 years because of the Adidas threat. Nike is finally fighting back, and the stock has subsequently risen 30% over the past 6 months. But Nike stock is now trading a premium to its trailing 5-year average valuation. Thus, any further gains will have to come from out-sized operational results.

But Adidas remains red hot. And the brand could get even hotter if it adds Drake. In that scenario, I don’t see Nike growing enough to warrant NKE stock being a winner from these levels.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.