Everything Is Coming Together For Nike Stock At The Right Time.

  • Nike continues to align its brand with the biggest stars in order to fuel sales.
  • Historically, Nike has performed well during the Olympics.
  • Nike has shown good results in key markets. Can Nike stock follow through with a strong performance?

Nike (NYSE:NKE) has a name synonymous with sport. The company has a presence in 109 countries. Throughout the years,  most leading sports stars have signed lucrative deals with Nike. Therefore, the $109.6 billion (market cap) sportswear brand has been able to leverage their popularity to move more and more inventory. Keeping true to their mantra of “Just do it.”, Nike continues to move forward with great momentum. As a result, Nike stock price has enjoyed significant gains over the past 5 years.

NKE stock chart

Source: Nike stock price data by amigobulls.com

With revenue growing at a compounded annual growth rate of 10% over the last 5 years, Nike’s growth isn’t down to chance. The brand has an insatiable appetite for finding new opportunities in order to bring their wares to new markets and drive newer revenue streams. For instance, Nike recognizes that sales from female consumers could be a lot higher. Therefore, it has put in place plans to go after this market more aggressively in 2016.

Interestingly, Western consumers are paying a lot more attention to their health and weight. This plays very nicely into Nike’s hands because this has boosted demand for sportswear. The growing Athleisure trend is another trend which is here to stay and Nike is well-placed to ride this new craze. Additionally, Nike has a huge brand presence and is therefore well placed to increase revenues.

2016 is an Olympic year, and historically, Nike tends to perform well during global sports events. Arguably, this is due to the fact that people get inspired by watching elite athletes, and consequently decide to join a sport; thereby increasing demand for Nike’s wares. Additionally, Nike is releasing a ‘new generation’ of shoes next year in order to encourage people to upgrade. Some of their athletes have already started to wear them- which is a good marketing strategy.

Nike Financials

As highlighted above, Nike stock price has performed really well in the market. They are a company which has the interests of its investors at heart. This was emphasized in November 2015 when they announced plans to buyback $12 billion worth of shares over the next 4 years. Moreover, they decided to increase the dividend yield by 12.5% (Fiscal year Q1 2016). This caused a frenzy of activity around the stock, thereby pushing the stock price higher.

Taking a closer look at the numbers, Nike has shown explosive growth in key markets such as Europe, Asia and China. Additionally, revenue for fiscal year 2016 is looking favorable with an increase of 5.4%. Consequently, Nike currently has momentum over brands such as Under Armour and Reebok.

Speaking of Under Armour (NYSE:UA), the company, although much smaller, continues to grow at an impressive rate. For instance, YoY revenue for the company stands at 28%, which is above Nike’s (8%). This is partly due to Under Armour’s investment in stars such as Steph Curry- who is tipped to become a future global superstar.

Impressively, Nike’s earnings per share growth is up by 22.9% in Q3 of 2015 as compared to Q3 2014. When we combine this with the fact that the debt to equity ratio is below the industry average at 0.09, investors can be confident that Nike have excellent cashflow management. To further explain, this conveys the notion that Nike is able to grow the business significantly, whilst managing their finances adequately in order to make lucrative investments in the future. Therefore, investors can expect stable growth into 2016 and beyond.

Conclusion

In conclusion, Nike continues to go from strength-to-strength, and this is emphasized by their impressive financial results. Moreover, their commitment to serving shareholders is exemplified by the share buyback and dividend hike. At this moment in time, momentum is firmly behind Nike, and you can expect a strong performance going into 2016 (Olympic year).

Nevertheless, Under Armour is strong competition with a five year sales average growth rate which stands at 29.2%, compared to Nike’s 10%. However, Under Armour doesn’t have the global presence or brand recognition that Nike has. Moreover, Nike has sponsorship interests in every major sport. Therefore, when it comes to consistency of growth over the next five years, Nike stock is more likely to come out on top.

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  • I am not an investment advisor, and my opinion should not be treated as investment advice.
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  • I do not have any business relationship with the companies mentioned in this post.
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