Everyone is talking about the Nike Stock. But here’s why I think another shoe stock is a better buy

It’s probably the most well-known athletic clothing brand in the world and one of the biggest shoe brands, so almost everyone already knows about NIKE (NKE 0.06%). But while everyone knows about it, it seems everyone is suddenly talking about it.

Nike grabbed the headlines for suddenly and surprisingly making a change in the CEO position. After leading the company through the pandemic, Nike decided it was time for John Donahoe to retire. In his place, Nike is bringing former chief executive Elliott Hill out of retirement.

Nike has also been in the news due to an investment by billionaire Bill Ackman. The high net worth investor has a hedge fund called Pershing Square, which only had investment positions in seven companies earlier this year. But Ackman started a position in an eighth company by investing about $275 million in Nike.

Nike could be the talk of the town. But I’d rather invest in shares of another shoe stock today: Crocs (CROX -2.10%). Here’s why.

Why I like Crocs stock better than Nike stock

Crocs is a footwear company consisting of its namesake brand and another brand called HeyDude. It doesn’t necessarily have much growth right now – net sales in the first half of 2024 were up just 5% from the first half of 2023. But it beats Nike when it comes to profit margin and investment valuation. .

Nike’s operating margin is currently around 12%, and there’s nothing wrong with that. But that’s what investors should expect – not much has changed in over a decade. Conversely, Crocs’ operating margin has steadily improved since CEO Andrew Rees took over in 2017. It’s currently holding steady north of 25%, which is double Nike’s margin.

CROX Operating Margin (TTM) data by YCharts.

When it comes to valuation, a lot has been said about how cheap Nike stock is compared to times past. And it’s true: At 23 times its earnings, Nike stock has rarely been cheaper over the past decade. That valuation may partly explain why Ackman bought the stock.

However, Nike stock is not significantly lower than the average for S&P 500as seen in the graph below. Crocs stock instead do what it represents a significant value compared to the market average as it trades at less than 11 times its earnings.

NKE PE report data by YCharts.

My investment thesis for preferring Crocs stock over Nike is off to a good start. Crocs has better margins and a cheaper valuation.

Driving the point home

Some might point out that Nike is a special case. After all, it just hired a new CEO who is very familiar with the industry and the brand. This could catalyze sales for Nike and send the stock higher.

It’s a fair point. But this positive result is not guaranteed for Nike. Moreover, Crocs has its own special situation that many investors overlook.

Crocs acquired HeyDude in early 2022 for $2.5 billion. Things got off to a good start, but sales for HeyDude have dipped recently. Crocs is still growing overall despite this headwind. But management believes it made some missteps that only hurt short-term sales. According to management, growth for HeyDude will resume before the end of the year.

Rees recently said: “We are as confident and as excited about the brand as we were when we bought it.” So while Nike has a potential catalyst for sales growth, Crocs also has one with HeyDude.

There is one more thing investors need to consider. I mentioned the valuations for Nike stock and Crocs stock for a reason. Both companies are likely to be profitable in the long run. But it is fair to believe that growth will be modest. This makes share buybacks a bigger part of the equation for shareholders.

In short, Crocs can buy back more shares compared to Nike because its shares are cheaper. Assuming its impressive operating margin isn’t a fluke, Crocs management can use profits more effectively to increase shareholder value with these buybacks.

The difference won’t be noticeable after just a quarter or two. But years from now, this can make a big difference. All of these things contribute to my preference for Crocs stock over Nike stock today.