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Nike is Still A Little Too High to Buy

Stock (Symbol)

Nike (NKE)

Stock Price

$59

Sector
Retail & Travel
Data is as of
January 10, 2016
Expected to Report
N/A
Company Description
nike_jordanNIKE, 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 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, Hurley and Converse. Source: Thomson Financial
Sharek’s Take
David SharekNike (NKE) has been on fire recently, as profits are set to grow 20% for the second straight year (NKE’s fiscal year end is May 31st). But we may have seen peak profit growth. Last qtr NKE was expected to have profits up 16%, and came through with 22% growth. Next qtr, 9% growth is expected, and if the company beats by the same amount that would mean 13% profit growth. This slower growth is an issue as the stock has a lofty P/E of 27. So even though the stock’s down from a high of $68 to $59, I feel its Fair Value is $49, which is 23x earnings. Twenty three times earnings might still be overvaluing the company, which has an expected long-term growth rate of 13% in addition to a 1% dividend. Once profit growth “normalizes” this stock could sell for 20x earnings. I feel money managers plowed into the stock in 2015 as it was one of the only ones going up, and overpriced the shares. One the bright side this is a world-class company, one that has lowered its share count by 2% per year the last ten years through stock buybacks (source: Bob Pisani, CNBC). With the dollar getting stronger, NKE may face foreign exchange headwinds in 2016, and as an investor I would wait a bit to buy in below $50.
One Year Chart
NKE_2015_Q4Great looking one-year chart, with the stock hitting support here. Profits jumped 22% last qtr on a 4% increase in sales. Sales growth is expected to bounce back to 10% next qtr, but profit growth is expected to be just 9%.
Fair Value
NKE_2015_Q4_PHI continue to feel 23x earnings is fair for this stock. Since NKE has its fiscal year end May 31st, I will be using 2017 earnings estimates to figure my P/E next qtr. With the current $59 stock price, the stock now sells for 23x 2017 earnings estimates. The stock market is in a harsh selloff, I feel we should try to get NKE at a lower price point.
Bottom Line
NKE_2015_Q4_10yrNike has had a remarkable ten-year run, which should continue as the company reported 15% to 20% growth in future orders, which are set to be delivered December 2015 through April 2016. But I do want to point out the stock has recently been on a faster move higher, and I feel it needs to come down a bit as it went too-far, too-fast. NKE is a stock I have on the radar for the Conservative Stock Portfolio, and I’ll look to buy in below $50.
Power Rankings
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Conservative Stock Portfolio

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