Roblox (RBLX -1.18%) has been the metaverse darling of Wall Street since its direct listing earlier this year. The gaming platform provider is posting impressive growth numbers, with 47 million daily active users during the third quarter. The problem for investors is that the stock has been quite volatile and trades at a high valuation of 33 times sales, which presents considerable downside risk if future quarterly reports don't live up to investor expectations. 

The good news is that there are other ways to invest in the metaverse. For example, Morgan Stanley estimated the revenue opportunity for luxury brands selling virtual goods on metaverse platforms could reach $56 billion by 2030, but this opportunity could apply to non-luxury brands as well. Here's why Nike (NKE -0.84%) is well-positioned to tackle the metaverse. 

A colorful virtual environment with the Nike logo floating in the sky.

Nikeland on Roblox. Image source: Nike.

Nike offers profitable growth

Roblox is the pure-play metaverse stock, and it offers lots of growth potential. Revenue increased 102% year over year in the third quarter, but the risk for investors is mounting losses on the bottom line. Its net loss widened through the first nine months of 2021 to $357 million compared to $197 million last year. Part of that loss stems from higher costs for content creation through developer exchange fees, which was Roblox's largest operating expense through the first three quarters of 2021.

Meanwhile, Nike is no slouch of a growth stock. The shares have more than tripled in value over the last five years, and unlike Roblox, the sneaker giant has been consistently profitable over the last decade. Nike's return on invested capital has increased from around 20% to 31% over the last 10 years. 

Nike trades at a price-to-earnings (P/E) ratio of 48 based on this year's earnings estimate. That's high compared to the S&P 500's average forward P/E of 21, but management is forecasting EPS to grow from the mid- to high-teens range over the long term and reported a 22% year-over-year increase in EPS in the most recent quarter. 

Nike's push into the metaverse and interest in selling digitized sneakers as non-fungible tokens (NFTs) is an overlooked growth catalyst.

Innovating with CryptoKicks

Nike just announced its own branded virtual world coming to Roblox called Nikeland. It could present an excellent opportunity to grow brand awareness and test ideas for new shoe designs. In Nikeland, Roblox users can hang out with others, play mini-games, and create their own experiences using interactive sports materials.

However, another huge opportunity is the NFT market, where unique collectibles are sold as digital tokens and use blockchain technology to validate ownership, like cryptocurrency. Sales of NFTs exploded to a record $2.5 billion in the first half of 2021. 

According to Morgan Stanley, demand for NFT collectibles could expand the addressable market for luxury goods by 10%. This could be beneficial to Nike. Its limited-edition sneakers already command massive prices on secondhand marketplaces like StockX. 

In 2019, Nike filed a patent for a new kind of NFT called CryptoKicks, which are digital representations of a shoe assigned a cryptographic token. 

A virtual sneaker with the Nike logo displayed on the side.

Image source: Nike.

The best part is that CryptoKicks can be connected to a real-world product, such as a physical pair of sneakers. The owner of a CryptoKick can "breed" the digital shoe with another digital shoe to create a new style. Assuming it's feasible to manufacture the new shoe design, the owner could have their CryptoKicks made into a custom-made pair of physical shoes. This could be explosive for Nike's footwear business, which accounts for two-thirds of its total revenue. 

One analyst estimates that sales of NFTs could be highly accretive to profits, generating a gross margin above 80% for consumer brands. By comparison, Nike's gross margin has hovered in the low-to-mid 40s, so NFTs and other sales of virtual goods in the metaverse could be highly beneficial to Nike's profitability. Overall, Morgan Stanley believes it could pad operating margins by 25% for luxury brands. 

Nike is already becoming a more tech-oriented company. Digital sales made up 21% of Nike's total revenue in the most recent quarter as it continues to see growing demand from e-commerce. Still, management sees that penetration rate reaching 40% by fiscal 2025.

Most investors wouldn't think of Nike or any consumer goods company right now as a "metaverse stock," but that's why investors should consider it. Notable metaverse names like Roblox and graphics chip maker Nvidia are well-known entities in this space and command high valuations, but that could limit their future return potential.

Meanwhile, Nike is laying the groundwork for growth in the digital economy with sales of virtual sneakers, which could lead to faster earnings growth and better returns than what the market is currently giving the stock credit for.