Better Buy: NIKE, Inc. vs. Skechers

By Travis

The fashion world can change rapidly -- tastes change, and products that are a hit one year can go out of style and leave the company making them in shambles the next. Nike (NYSE: NKE) has been one of the longest lasting top brands in the world, and has a hand in nearly every sporting category. Skechers (NYSE: SKX), meanwhile, has been a hit and then faltered, then seemed to make a comeback in recent years.

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From an investment standpoint, which stock should you be more interested in? Here's a look at where Nike and Skechers stand today.

Image source: Nike.

Consistency goes to Nike

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One of the biggest challenges in retail is matching supply with demand. If you make too much inventory it can lead to product writedowns and low margins, so consistency is a huge advantage for companies like Nike and Skechers. And as you can see below, Nike is a far more consistent company.

NKE data by YCharts

Even though Skechers has grown more in the last decade, Nike's stock has had much better returns. And the more consistent financial results are a big reason why.

Margins matter in retail

In any business, high margins are better than lower margins. And right now Skechers has higher margins than Nike for its products. But that hasn't always been the case.

One of the byproducts of consistency is more predictable margins, and on that front Nike has a huge advantage long-term. You can see that Nike has ups and downs in its business, but Skechers is a boom or bust company right now. Over the last three years its fortunes have improved, but look back to 2009 or 2012 to see how bad operating margins got, at one point going below 100%.

NKE Gross Profit Margin (TTM) data by YCharts

The sharp jump in margins that you see from Skechers in the last two years is a big reason its stock has outperformed Nike over the last five years. But long-term, Nike's margins have been more consistent, and that's why the company's stock has outperformed Skechers over the last decade.

The hot retail play or the long haul?

There's no question Skechers has improved its products and brand over the last few years, which has led to sharply improved financials. But looking at the charts above you can see that it has a tendency to make missteps that are extremely costly financially.

Nike, on the other hand, is a well oiled machine. It's been a popular brand for decades, and has a huge advantage in the lucrative sporting goods market. It's also managed to build its business to be more direct to customer, relying less on retail than many competitors.

In the brand business, Nike's consistency is worth a lot to investors. And shares are trading at just 22 times earnings, which isn't terribly expensive for a company that's shown consistent growth for decades. In the battle between these two stocks, Nike is the better one for investors.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nike and Skechers. The Motley Fool has a disclosure policy.