Why Nike's $50 Billion Sales Projection Is Important To Investors

  • Nike is projecting revenue of $50 billion by 2020.
  • Valuation using current growth rate indicates Nike stock is trading at a huge discount with over 50% upside potential.
  • Don't let the growth rate of their smaller competitors distract you from this investment.

Nike (NYSE:NKE) said that by 2020 they will hit $50 billion in sales, and yet investors don’t seem at all bothered – and they shouldn’t be. Given Nike’s double digit growth rate, it is actually very feasible to think that the footwear giant will meet and potentially exceed those expectations. For the fiscal year 2015, Nike’s revenue was over $30 billion, up 10% from the year prior. If they continue forward with a 10% compound annual growth rate, Nike will hit their $50 billion target for 2020.

So how can Nike grow to hit $50 billion in revenue? First of all, they are expecting their e-commerce business to grow to $7 billion by 2020, compared to the current $1 billion today. Secondly, they are pumping money into the women market, trying to grow their women’s segment from $5.7 billion to over $11 billion. And finally, they can capitalize on the “athleisure” trend by diversifying their global sales and driving more revenue from overseas. As you can see below, the United States accounted for nearly 45% of Nike’s sales for 2015.


Source: Market Realist

So what does annual revenue of $50 billion mean for Nike stock? Below I have outlined my DCF for Nike. I did a 5 year projection with revenue coming in just shy of $50 billion in 2020. I used a terminal growth rate of 6% and a discount rate of 8%, which is tied exclusively to their cost of equity because they have positive net debt. I used an operating margin that mirrors their current margin, however, Nike has been improving its margins recently. Nevertheless, as competition in athletic apparel increases, margins can thin in order to stay competitive, therefore, I decide to appeal to current/historical margins for the model.


As you can see, I have Nike’s equity valued at $157 billion, significantly higher than their current market capitalization of $103 billion. This implies that Nike stock is trading well below their fair value and offers more than 50% upside to investors.

If the athleisure trend continues, Nike is poised to continue forward with their double-digit top line growth, which will take them to $50 billion in annual revenue by 2020. After breaking it down to the bottom line, Nike is a great value for investors. Competitors like Under Armour (NYSE:UA) and Lulu (NASDAQ:LULU) have stolen a lot of investors’ attention because of their incredible growth rates which significantly exceed Nike’s. However, they still remain significantly smaller and riskier investments. But perhaps the attention of these new athletic apparel companies has been the catalyst that has led to Nike stock trading below its fair value. Either way, the verdict on this one is clear – Nike stock is a buy.

Nicholas Durante Nicholas Durante   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • See Amigobulls' policy on anonymous authors who use a pseudonym
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

At Amigobulls, we prefer that our authors disclose their real names. However, due to a variety of reasons, author's may prefer otherwise. Recognizing the fact that the ideas conveyed carry greater significance, and to facilitate the dissemination of these ideas, we allow authors to use a pseudonym. However, we do collect the same of details from anonymous authors, as we do from others, like the author's real name and contact information. Of course, this information remains confidential with us, and is not displayed on the site.
Further, to protect the interests of our readers/viewers, anonymous authors are required to make the same set of disclosures as other authors. For more details, you can write to any of our in-house editors at contributions@amigobulls.com.

show more

Comments on this article and NKE stock

Do share this awesome post