Nike (NYSE:NKE) may still be the heavyweight champ for footwear and sports apparel, but the quality of the undercard is steadily improving such that one day Adidas (OTC:ADDYY) or Under Armour (NYSE:UA) may seriously challenge its dominance.

Image source: Getty Images.

Adidas is the older and larger of the two, having been founded in the 1940s and having trailing revenues of almost $20 billion, while Under Armour was launched in 1998 and has $4.7 billion in revenues. Despite the former having had a substantial head start and even being a one-time fashion pop icon, the latter has made up for lost time and was even able to strip from Adidas the title of No. 2 sports brand in the U.S. last year.

Yet Adidas is enjoying a resurgence in popularity, even as Under Armour (and Nike) stumble so that it is once again in second place in sports brands.

That the two seem so evenly matched today and poised to finally take on Nike's preeminent position means it's a good time to take a look at why each of the two sports apparel and footwear companies might make the better investment for your portfolio.

Adidas as the better investment

Adidas is on a roll. Third-quarter sales jumped 17% on a currency-neutral basis, with sales of the Adidas brand 20% higher and Reebok sales up 7% year over year. It also enjoyed double-digit growth in all the markets it sells into, with the exception of Russia, where sales were up by mid-single-digit rates.

In addition to Adidas and Reebok, the sports-apparel maker also has a powerful bench in Rockport, Taylor Made, and CCM, giving it broad coverage of virtually the entire sports field, not to mention still being a fashion statement. In particular, Adidas called out its "originals" lineup as a key lever driving sales 41% higher in the period, as well as its Boost technology platform gaining millions of consumer adherents. The individual capsules that comprise the platform and make for an arguably better shoe than the better-known single-piece EVA foam is leading Adidas to ship 13 million units this year, up from 12 million in 2015.

Image source: Adidas.

While Adidas doesn't command the same pricing power as does Nike, as a comparison of their margins shows, Adidas is making up in volume what it might lose in price. In North America, Adidas sales were up 20% in the third quarter, compared with just 6% for Nike, and 15% for Under Armour.

Sure, Nike is still the sales king, selling more than $4 billion worth of merchandise in the market versus $1.2 billion for Under Armour and $927 million for Adidas, but after suffering from several years of declines, the latter has staged a smart comeback.

With a stock price of $75 a share and trading at 29 times trailing earnings, Adidas isn't cheap and is even slightly more expensive than Nike at 23. But its strong performance makes it worth the premium the market is assigning to it, and with analysts expecting it to earn $3.89 per share this year, two and a half times better than the $1.57 per share it earned last year, Adidas looks like the ball is in its court.

Under Armour as the better investment

Under Armour's stock has fallen sharply since the spring, losing nearly half its value on fears of slowing growth. Where annual sales have risen between 27% and 32% over the past three years, the upstart sports-apparel maker says those rates will slow over the next to years as sales hit $7.5 billion by 2018. That implies a growth rate in the low 20% range, which is still remarkable for most companies but is less than what Under Armour investors are accustomed.

Yet analysts forecast earnings will grow by 25% over the next five years, more than double the 12% growth rate expected for Nike and far surpassing Adidas estimates of just 2% growth, suggesting it will be Under Armour that is putting its best foot forward.

Image source: Under Armour.

It's true analysts do expect its margins to erode over time as it moves further into the footwear market, which now accounts for 22% of total sales compared to 18% last year. As the relative newcomer to the field, it has competed on price and that has hurt profits, but footwear also carries higher costs to make than do its apparel and accessories. Gross margin slipped 130 basis points in the third quarter, though they're down just 70 basis points year to date.

However, Under Armour could see new markets opening to it as its footwear gains mega-star power with the likes of Steph Curry, Jordan Spieth, and Cam Newton hawking its wares. That's now trickling down into college sports, where CBS Sports says Under Armour is the new No. 2 brand behind Nike. That's the kind of association that can end up extending beyond the court and into the street.

Beyond footwear though, Under Armour is also heading into the athleisure market with a new line of performance wear that CEO Kevin Plank thinks could be worth $15 billion to the company in the future.

It's hard to argue that even after losing 36% of its value in 2016, Under Armour's stock is not expensive. It trades at 57 times trailing earnings and 36 times next year's estimates, but the market is pricing it based on its ability to produce results, which includes being able to grow revenue at better than 20%, which it's done for 26 consecutive quarters. That looks as if it's not going to change anytime soon, either.

The verdict

Although Adidas and Under Armour seem competitively matched, I find the scales tilting in Adidas favor. It's got momentum on its side, having invested heavily in technology when it was down, and then reviving its classic Stan Smith, Superstar, and Gazelle sneakers. That has allowed it to steal a lot of Under Armour's thunder, which also stumbled with the Steph Curry 2.0s that haven't sold well since their introduction. With a better valuation than its rival (but admittedly lower longer term earnings growth estimates), Adidas also pays a dividend that currently yields 1.21% annually.

An investor might do well with either one, or both -- or all three, if you include Nike in the mix -- but I think Adidas still has more catalysts in its favor that make it the best bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.