Shares of athletic apparel giant Nike (NYSE:NKE) have been on fire for over a year now. Back in late 2017, everyone was worried about rising competition and global athletic market saturation diluting the company’s near- and long-term growth prospects. Those worries have since completely disappeared, as Nike has leveraged high-speed product innovation and targeted investments to squash rising competition and re-accelerate growth to multi-year high levels.
Consequently, Nike stock has zoomed from $50 to $80 over the past sixteen months.
There are many reasons to believe this run in Nike stock isn’t over just yet. Growth has turned around in the critical North America region and is only accelerating higher. International growth remains red hot, especially in China, a region where growth should be slowing, but isn’t. Margins are racing higher. The current pace of product innovation is relentless and unprecedented. The controversial Colin Kaepernick ad appears to have done much more good than bad and is energizing a young core consumer base in the U.S.
Plus, Nike just won a contract to supply the MLB with on-field jerseys and equipment, a big win which expands the company’s presence in the baseball market. But one catalyst which has yet to be mentioned by mainstream media could be a complete game-changer: Nike’s recent entry into the men’s yoga market.
The men’s yoga department over at Nike is small. But it’s growing — and that’s a big deal. The yoga market is a huge and on-trend global market that is arguably the last frontier in the athletic apparel space that Nike has yet to conquer. Entry into this market — both on the men’s and women’s side — could yield huge long-term benefits for both Nike and Nike stock.
As such, investors should add “entry into the yoga market” as yet another reason to stick with Nike stock in 2019.
The Yoga Market Is Huge and On-Trend
There are two things which make the global yoga market very valuable and one worth pushing into: it’s already very big and it’s only rapidly growing.
Depending on who you ask, the yoga market in the U.S. is around $12 billion to $16 billion in revenues. Just over 10% of Americans are active “yogis”, about 33% of Americans have done yoga at least once and the number of active yogis has grown by 50% over the past several years (the men’s market has actually more than doubled during that same time frame). This big participation growth has led to consistent mid-single-digit and often much higher revenue growth across the entire U.S. yoga industry over the past several years.
Meanwhile, on the global side of things, the global yoga market measures in at $80 billion in revenues. That revenue base is expected to grow by 6% per year over the next several years.
Thus, the global yoga market is huge and rapidly growing. At scale, it’s easy to see this market growing to $100 billion. Nike’s revenues over the past twelve months are under $40 billion. It has zero presence in the yoga market.
Hence, it’s easy to see how gaining just 5% of this market at scale could boost revenues by over 10%. It’s also a high-margin business, so it could add 10%-plus to profits too. That’s a big deal for Nike and Nike stock.
Nike Will Make Noise
Broadly speaking, it makes sense that Nike wants to enter the yoga market. It’s huge. It’s rapidly growing. And it’s the last frontier in the athletic apparel space that Nike has yet to conquer.
But will Nike be successful in penetrating this market?
Yes. To be sure, heavyweights in the industry like Lululemon (NASDAQ:LULU) have a firm grip on the women’s side of the market. But, the men’s side is largely up for grabs, largely because the men’s market has historically been too small and too niche to worry about at scale. But that’s changing. The number of men practicing yoga in the U.S. has more than doubled over the past several years — and almost one out of every 3 yogis in the U.S. is male.
Thus, the men’s yoga market is finally coming into its own. No single yoga apparel company has a firm grip on that rapidly growing audience.
My prediction? Nike will win the men’s yoga market and then use that success to grow share in the women’s category. In terms of mind-share among young male consumers, Nike is second to none. The company is certainly far above Lululemon and any other yoga brand. Thus, while current male yogis may have an affinity for Lululemon, new male entrants to the market will likely turn towards Nike. That will help Nike establish a strong presence in the men’s yoga market, which the company can leverage to expand share in the women’s category.
Overall, thanks to the robust growth of men’s yoga and Nike’s favorable positioning among male consumers, Nike is in a optimal position to win valuable share in the rapidly growing men’s yoga market. As stated earlier, that’s a big deal for Nike stock.
Bottom Line on NKE Stock
Nike stock has been on fire for over a year. It will remain on fire for the rest of 2019. From innovation pipeline to professional league partnerships, there are a lot of things to like about the Nike story.
One of those things is this company’s recent entry into the men’s yoga market. This is a huge market. It’s also rapidly growing, and Nike is in a favorable position to rapidly gain share. As such, yoga market share advances will move the needle for Nike’s revenues and profits over the next several quarters and years. That will ultimately keep Nike stock on a winning path.
As of this writing, Luke Lango was long NKE and LULU.
