A few years back, technology found its way into the retail market, and the companies that successfully infused technology with retail, like Amazon.com (NASDAQ:AMZN), soared.
Also a few years back, technology found its way into the entertainment market, and the companies that successfully infused technology with entertainment, like Netflix (NASDAQ:NFLX), also soared.
This has happened time and time again in different markets. Technology continues to widen its reach and dip its finger tips into different markets. Once that happens, that market is forever changed, and only the companies that adapt to that change are positioned for multiyear success.
Right now, the latest trend is technology starting to find its way into the sneaker market. Big brands are leveraging technology to create next-gen shoes, and these next-gen shoes are inevitably the future of the sneaker market.
With that in mind, here’s a list of four high-tech sneaker stocks that are positioned to win from this trend.
High-Tech Next-Gen Sneaker Stocks 1: Nike (NKE)
At the front of the high-tech sneaker trend is the market’s biggest player, Nike (NYSE:NKE).
The story at Nike is that the company was getting its butt kicked in the athletic apparel market for several years by insurgent brands that were more on-trend than Nike. But then Nike refocused its resources toward quicker product innovation and enhanced sales capability. It worked. Now, Nike is back on top in the sneaker market.
Nike’s top-dog status in the sneaker market will persist. Partly because Nike still has an unparalleled cool factor and remains the gold standard. But also, Nike is starting to use technology to change all aspects of its business to be more relevant for consumers.
For example, Nike just acquired Invertex Ltd., a leading computer vision firm based in Israel. The acquisition could allow Nike to completely transform its own stores into quasi-virtual reality stops where consumers can outfit themselves in Nike apparel through a VR lens.
This is just one example of the great many ways that Nike is starting to use technology to change its business. These changes are for the better, and as such, will help Nike remain the top dog in athletic retail.
High-Tech Next-Gen Sneaker Stocks 2: adidas (ADDYY)
In terms of the high-tech sneaker movement, Nike is 1A, and adidas (OTCMKTS:ADDYY) is 1B.
The story at adidas has been very different than the story at Nike. Nike has been getting its butt kicked for the past several years, and the company doing most of that butt kicking was adidas.
The adidas mainstream emergence into mega-popularity has many catalysts, including a return to favor of retro styles, celebrity endorsement from rapper Kanye West, and a broad lifestyle marketing approach to athletic apparel.
But one of the major drivers of the adidas success story over the past several years has been technology.
Specifically, the company launched its Boost technology — the white foam at the bottom of adidas shoes that added comfort — five years ago. Ever since, the company hasn’t looked back. Boost shoes have been the hottest sellers, and iterations of the Boost, such as Ultraboost, are just as popular.
The innovation at adidas isn’t done yet. The latest and greatest from adidas is the FutureCraft 4D, a shoe that the company claims is “based on data-driven design brought to life with digital light synthesis technology.”
So long as adidas can remain at the forefront of the high-tech sneaker trend, then the company, and the stock, will do just fine competing alongside industry titan Nike.
High-Tech Next-Gen Sneaker Stocks 3: Under Armour (UAA)
In the high-tech sneaker world, adidas and Nike are in a two-horse race for first place. Beyond them, there is considerably less innovation happening as it relates to morphing technology with sneakers.
That being said, Under Armour (NYSE:UAA) is dabbling some in the high-tech sneaker world. Mainly, the company operates a Connected Fitness business which is the foundation for smart shoes, smart shirts and smart shorts that connect to your phone for data-tracking and performance-enhancement purposes.
This business isn’t small ($29 million in revenues last quarter). Nor is it slow-growth (revenues +34% last quarter). It also has big growth prospects over the next several years as the mainstream emergence of the Internet of Things (IoT) propels accelerated adoption of smart clothing.
Thus, over the next several years, Under Armour’s play in the high-tech sneaker world is through selling a bunch of smart clothing which is integrated with its Connected Fitness software ecosystem, and that is a pretty strong play in a big growth market.
The valuation on Under Armour stock is somewhat worrisome here at a rather wild 125 times forward earnings. But, if the stock cools off and pulls back, the “buy the dip” thesis is predicated largely on this company’s unique ability to sell a ton of smart clothes over the next several years. If you believe in that thesis, then UAA stock could be a strong buy below $20.
High-Tech Next-Gen Sneaker Stocks: Skechers (SKX)
Better known for price than innovation, Skechers (NYSE:SKX) has nonetheless maintained popularity and gained global market share over the past several years through its use of technology to improve the comfort of its shoes.
Very few people know this, but Skechers is actually among the fastest-growing athletic apparel brands in the world right now. And that has been the case for while. Over the past several years, quarterly revenue growth has been largely over 15% and was as high as 40% in 2015.
What is driving the big growth? A lot of it is price. While Nike, adidas and Under Armour compete over having the best shoe, Skechers is winning on having the best price. Price always wins, and as a result, Skechers has been winning.
But another, less appreciated, part of the Skechers comeback is technology. A few years back, at the start of the Skechers comeback, the company launched its Memory Foam technology, which more or less resembles an ultra-squishy insole that adds tons of comfort. Much like the adidas Boost technology, Memory Foam shoes became Skechers’ best sellers, and that run hasn’t died down yet.
The best thing about Skechers is that the stock is trading at just 14.5 times forward earnings. Yet, revenue growth was 16.5% last quarter, making this the ideal Growth at a Reasonable Price (GARP) stock.
As of this writing, Luke Lango was long AMZN and SKX.