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Nike is Killing It

Stock (Symbol)

Nike (NKE)

Stock Price

$115

Sector
Retail & Travel
Data is as of
September 25, 2015
Expected to Report
Dec 16 – Dec 21
Company Description
nike_converse_hurleyNIKE, Inc. is engaged in the design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. The Company sells its products to retail accounts, through NIKE-owned retail stores and Internet Websites (which the Company refers to as its Direct to Consumer or DTC operations), and through a mix of independent distributors and licensees throughout the world. The Company focuses its NIKE Brand product offerings in eight key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear (the Company’s sports-inspired lifestyle products) and Golf. The Company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities. The Company’s portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. Source: Thomson Financial
Sharek’s Take
David SharekNike is just killing it right now as indications show profits could grow at 20% for the second straight year. The stock’s been a darling too, in 20013 it broke out at $60 and then again at $70, then broke out again at $80 in late 2014. And then it broke out at $100 and $120 this year. Today it was $130. Wow. It didn’t even fall much during the serious correction we just had. Profit growth has averaged 23% the last four qtrs — tremendous for such a large company — and future orders for Fall/Early Winter are up 17% over last year, so that 20% growth will probably continue. This is great for an International company, as the strong dollar is hurting a lot of multi-nationals. That’s got to be attracting mutual fund money. Everything is great about Nike, except for the P/E ratio, which at 27 seems a bit high.
One Year Chart
NKE_2015_Q3NKE has a great looking one-year chart. Except the P/E that is. Still, solid profit growth of 23% or more in three of the last four qtrs. Estimates look good now, and the company beat by 15 cents in each of the last 2 qtrs, if it continues to do so profits will climb 35% and 36%. Those are high expectations. Maybe too high.

Last qtr NKE had 23% profit growth on a 5% increase in sales, after F/X. If we exclude currency sales rose a solid 14%. But that P/E of 27 sticks out like a sore thumb. It’s high sitting next to the Est Long Term Growth Rate of 12%. Keep in mind this data is from last month, the stock closed at $131 today.

Fair Value
NKE_2015_Q3_PHSince profits are growing around 20% right now, I feel 23x earnings is fair for this stock. The company is growing around 20% now but that will eventually slow and it will be hard to keep a 27 P/E when that happens. Look at the stock’s history. The P/E was usually between 17 and 20.

Even if the P/E comes down to 23 next year, the stock might be around where it is today. Or maybe lower (or maybe higher). My 2016 Fair Value is $112. I need some upside.

Bottom Line
NKE_2015_Q3.10yrNike is killing it right now, and everyone knows it. Thus the stock is a little too high for me to buy right now. And I feel I’ll be regretting not getting it now…but still 27 times earnings is a steep price to pay for a company as large as this. You can see in the ten-year chart the recent rise is above the NKE norm. Also the Yearly Stock Growth of 19% per year is much higher than the Yearly Profit Growth of 13% and these should be about even. I know NKE is rising right now, but I feel more comfortable waiting to buy if it corrects.

I won’t be adding NKE to my portfolios at this time.

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