In the documentary The Last Dance, it was revealed that Michael Jordan's first choice for a sneaker deal when he went pro was adidas (ADDYY -2.23%) -- he loved the German athletic brand and wanted to wear its shoes in the National Basketball Association. But while adidas was reluctant, Nike was willing, and the Air Jordan phenomenon was in no small part responsible for Nike's multi-decade sportswear dominance. Today, Nike's market cap is almost three times the size of adidas'.  

In recent years, though, adidas has begun to make a comeback. It launched a plan back in 2015 to increase its online sales and visibility in the lucrative North American market -- coinciding with Kanye West's adidas Yeezy shoes that same year after West ditched Nike. Since then, adidas' stock has grown nearly three times more than Nike's.  

At this juncture, deep in recession and with the world still reeling from COVID-19, adidas is holding its own. As it's such a large operation, it's unlikely to send your portfolio into the stratosphere all by itself. But it might help, as the three-striped apparel maker picks up where it left off pre-pandemic. 

Three young people in workout clothes running across a bridge.

Image source: Getty Images.

Sneaker sales making a comeback

Looking at adidas based on its overall first-half 2020 results doesn't yield much useful info. With some 70% of its global stores closed at the peak of the lockdowns, it's no surprise revenue tanked 35% in the second quarter and was down 27% through the first six months of the year.

However, as of the end of June, 83% of adidas' stores were operating again on limited hours. Sales will likely remain down compared to 2019 for the remainder of this year, but China (an important growth market for many apparel brands) was promisingly back to flat compared to a year ago. E-commerce also did well, growing 93% in Q2 and going a long way toward offsetting pain elsewhere. And in spite of the big quarterly tumble, adidas' gross margin on merchandise sold fell only 2.4 percentage points and was a healthy 51%.  

At the end of June, adidas' balance sheet was OK. Cash and equivalents were 2.02 billion euros ($2.39 billion using exchange rates as of Sept. 2), good for roughly one quarter of a year's worth of operating expenses. Total debt was 2.82 billion euros ($3.34 billion). Not the strongest of positions in the apparel industry, but adidas has the liquidity it needs to manage the crisis and keep its shoemaking empire rolling as effects from the virus-induced recession slowly wear off.

A long-term bet on shoes

Adidas learned from its Michael Jordan bumble long ago and remains active in picking up pro athletes and celebrities alike. It signed a deal with Beyoncé and esports celeb Tyler "Ninja" Blevins last year, and has a dominant presence in soccer (ahem, "football" everywhere but the U.S.), we well as resurgent success in basketball with James Harden's shoe as part of the adidas family. Be it traditional sports, video gaming, or lifestyle apparel, adidas is keeping up with the times and is on trend.

Put simply, adidas is a solid bet on the enduring popularity of the sneaker -- especially with its established and growing presence in China, Latin America, and other emerging economies and its healthy e-commerce business. And with shares still not fully recovered from this year's market meltdown and trading for 19 times trailing 12-month free cash flow (revenue less cash operating and capital expenses), this could be a long-term value and coronavirus recovery stock in the making.  

With such a large market cap already, a millionaire-maker adidas is not. But it's certainly worth considering for sports apparel fan investors. For those looking for a shoe stock with bigger upside possibility, take a peek at Skechers, as well as this list of other top consumer discretionary stocks for 2020 and beyond.