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I Don’t Understand the Love Investors Have for Nike

Stock (Symbol)

Nike (NKE)

Stock Price

$67

Sector
Retail & Travel
Data is as of
January 30, 2018
Expected to Report
Mar 19
Company Description
nike_forreuseNIKE, 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, and through a mix of independent distributors and licensees throughout the world. Nike’s portfolio brands include the NIKE Brand, Hurley and Converse. Source: Thomson Financial
Sharek’s Take
David SharekNike (NKE) has been hot since it bottomed at $50 last October, as its show up close to $70 a share. What’s crazy is profits have declined for two straight qtrs — and the stock sports a hefty P/E of 29. The stock’s also had 2018 profit estimates decline for eight straight qtrs. I don’t get it, and I’ve been left out of this move as I sold the stock November (at a lower level). With workout gear lasting longer than ever, the public hasn’t needed to buy stuff like they did before. And the trend to athletic wear was big 3-5 years ago. Now it’s taken a back seat to retro-gear. Adidas has been killing it with it’s old-school styles, and has been eating Nike’s lunch for years. But last qtr NKE launched 10 retro versions of its iconic styles, including the Jordan 1, Air Force 1 and BlazerSuccess with its new old-school kicks could prove to be a catalyst for the company. But NKE seems focused on improving technology in its running shoes, which I feel is a mistake as Nike’s shoe styles haven’t been as good as Adidas. I feel the company should appeal to the masses. But what do I know, as soon as I sold this stock from the Conservative Growth Portfolio it broke out and ran higher. Right now doesn’t seem like the time to get back in as the P/E is 29 and I think it should be 22. 
One Year Chart
Profit growth was -8% last qtr and sales rose 5%. Crazy that the stock is this hot. NKE beat the street by 6 cents last qtr, but  estimates had been slashed by 20 cents leading up to the event. Qtrly Estimates are for -24%, 22%, 14% and 17% profit growth. But management has slashed next qtr’s estimates for five qtrs straight. 
Fair Value
My Fair Value is a P/E of 22 which puts the stock in the $50s. In prior years NKE did have a higher P/E, but profits were growing faster then.
Bottom Line
Nike got a little ahead of itself a couple of years ago when profits were growing faster than they are now. The stock’s P/E got to 31 in 2015, and that was too high. Then the stock fell, had a recovery, and is now hitting resistance. With a P/E of 29 I don’t see it continuing higher. But what do I know? I sold the stock last qtr. NKE is on the radar for the Conservative Growth Portfolio.
Power Rankings
Growth Stock Portfolio

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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