There is no doubt about it. When it comes to athletic retail, Nike (NYSE:NKE) is the king of the jungle.

But this king spends a lot of time defending its throne. A few years ago, Under Armour (NYSE:UAA) made a big run behind NBA superstar Stephen Curry. More recently, Adidas (OTCMKTS:ADDYY) has leveraged retro and lifestyle trends to surge in popularity.

Ultimately, Nike has successfully fought off those threats, and Nike stock has headed higher. But it wasn’t always pretty. Rising competition creates some turbulence in the numbers, which spills over into the stock price. Thus, as a result of rising competition, Nike stock has been subject to multi-month streaks where it does nothing.

I think we are coming up on one of those sideways streaks right now.

Nike stock has been on fire ever since October of last year. Everyone has been buying up the stock on hopes for a turnaround in the North America business and, as such, the stock now trades at 29-times forward earnings, versus a 5-year average multiple of 25.

Clearly, Nike stock is priced for perfection.

But investors won’t get that. Instead, investors will get yet another competitive threat from an all-the-sudden red-hot Puma, and that competitive threat will derail what has become an inflated valuation on Nike stock.

Here’s a deeper look.

Puma Is Making Big Moves in Basketball

The NBA season is over. Naturally, all attention now shifts to the upcoming NBA draft, which many fans expect to be one of the best of the 21st century.

One of the biggest pre-NBA draft story-lines deals with rookie shoe contracts. These guys are presumably the future of the NBA, and while most may pan out as mediocre players, there is a chance that there is a gem in the mix, so shoe companies battle out to sign rookies to their first NBA sneaker contract in hopes of landing a superstar.

Usually, the titans of the basketball industry (Nike, Adidas and Under Armour) dominate this story-line. They sign all the relevant top players, and that’s that.

But this year is different. Puma, who is essentially non-existent in the basketball world, has stole the show this year. Puma has signed both DeAndre Ayton and Marvin Bagley III, the consensus top two picks and two best players in this year’s draft. They’ve also signed Zhaire Smith, who is projected as a top 15 pick.

Concurrent to all this, Puma has named rapper/celebrity Jay-Z as Creative Director of Puma Basketball.

Clearly, Puma is aggressively re-launching its basketball business. And its working. Signing the top two players in this year’s draft is exceptional momentum for this upstart brand, and if it continues, Puma could become a legitimate threat in the basketball market.

After all, the last time Puma had an NBA endorsement deal was back in 1998. Since then, the company hasn’t been in the basketball market at all. But now, the brand is armed with some marquee young talent and an iconic Creative Director who could convince other top players to hop on the Puma bandwagon.

Rising Puma Is Bad for Nike Stock

This is all bad news for Nike stock.

Nike stock has been propped up on this idea that the North America business is turning around after several consecutive quarters of declines. Indeed, all the signs over the past several months have pointed to improving North American fundamentals for Nike.

But the new Puma threat could change that.

A big part of Nike’s North America business is basketball. Between the Jordan and Nike brands, Nike has a large roster of notable athletes signed to endorsement deals. Together, all those NBA athletes sell a ton of Nike basketball shoes.

Puma’s current deals with two big-name rookies won’t derail Nike’s basketball business. In fact, it shouldn’t cause much more than a dent.

But if Puma has already signed the top two players in this year’s draft class in their first year back to the basketball market, then it is highly unlikely that this brand is done making big moves in the NBA. With Jay-Z on board, it is far more likely that Puma continues to grow its NBA athlete roster.

At some point, that roster gets big enough to impact Nike. And this whole North America turnaround narrative gets thrown for a loop. When that does happen (or perhaps sooner), Nike stock will drop.

Bottom Line on NKE Stock

I was a huge fan of Nike stock when it was at $50 in October 2017. But now that it trades near $75, sports a super-charged valuation, and is looking at still increasing competitive risks, I’ve turned bearish on Nike stock. A pullback is coming.

Will Puma catalyze that pullback? Maybe. Or perhaps just weaker-than-expected numbers could spark it. Who really knows? But this stock does look susceptible to any hiccup, and hiccups happen all the time in athletic retail.

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