Nike Stock Is Weathering The Current Market Storm

  • Nike stock is rebounding after August sell-off, approaching 52-week highs
  • Financials remain strong
  • Nike is the leader by far in the sports apparel market
Nike Stock is a good long term buy

While the market is still hovering near 52-week lows, some stocks have bounced back nicely and are climbing back to their 52-week highs.  Nike (NYSE: NKE) is one of those stocks.

Nike stock was caught in last month's sell-off and fell over $23 from the 52-week high of $117.72 on August 5.  It slid to an intra-day low of $94.50 on August 24, but has since recovered most of those losses.  In the past seven trading days, the stock is up more than $17 closing Friday's trading session at $111.82, just $6 off the 52-week high.

NKE stock chart

Source: Nike stock price data by amigobulls.com

The stock's rebound reflects the strong financials of the company.  Nike is a fund manager's ideal stock -- a steady climber.  The stock price beat the market over the last few months with less volatility (its beta is 0.72 vs. 1.0 for the market).  Nike's revenue for the past two years has consistently increased about 10% year-over-year.

NKE revenue chart

Source: Nike revenue data by amigobulls.com

The company's profits in 2013 were about 9% higher than the previous year, while in 2014, profits increased 21.5% YoY.

On June 25, the company handily beat earnings expectations, sending the stock to all-time highs within two months.  Nike reported revenue of $7.78 billion vs. $7.69 billion expected.  It also beat wall street EPS consensus of $0.83 by  15 cents, reporting EPS of 0.98.  Gross margin also increased slightly, benefitting from higher prices.

Nike is growing by increasing sales in different segments of its market.  Last quarter, sales of women's apparel grew faster than men's apparel.  The company continues to expand sales to the youth athletic market.  Of course, the company has a long history in the runner's market.  The company continues to innovate and offer a pipeline of new products in each of these categories.

Although competitors Under Armour (NYSE:UA) and Lululemon Athletics (NASDAQ:LULU) have made some in-roads in the market, Nike remains the 800-pound gorilla.  Nike's market cap is $95.6 billion, more than three times that of Under Armour ($20.8 billion) and Lululemon ($7.6 billion) combined.

When LULU created high-margin athletic-leisure clothing that women can wear in or out of the gym, Nike quickly followed suit.  While Nike continues to increase sales and profits, Lululemon saw profits slip even with a 16% increase in sales.  Under Armour had similar results: revenues increased by 28% YoY in the last quarter, but earnings declined.  This demonstrates that while both competitors are growing compared to Nike, they must spend heavily to achieve it through increased selling, advertising, and other expenses.

Nike runs like a well-oiled machine, cruising forward steadily with few breakdowns.  Founded in 1964, they have had plenty of time to perfect their craft -- and that is exactly what they've done.  They now control more than 60% of the athletic apparel market.  Nike has come a long way since going public in 1980 at $0.36/share (now trading at $112/share).

With such a strong history of dominating its market and increasing sales, Nike stock remains an excellent long-term purchase for investors.  Nike will likely hold onto its dominant position for a long time to come.  If any other company ever takes the lead in the market, it won't happen any time soon.

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