With the World Cup tournament in full gear, it is not surprising that one of the Dow’s newest members, NIKE (NKE – Free NIKE Stock Report), has been highly visible. The famous athletic footwear maker’s name has been seen not just around Brazil’s soccer stadiums, but in major sports arenas and other high-traffic venues around the world. Accordingly, the stock has been on investors’ radar lately. Though not a standout in all respects, the blue chip has a lot going for it, which makes it a viable investment choice for some.
One can hardly deny the company’s prominent influence on American culture. Like its fellow brethren Coca-Cola (KO- Free Coca-Cola Stock Report), McDonald's (MCD - Free McDonald’s Stock Report), and Disney (DIS - Free Disney Stock Report), the NIKE name, along with its signature swoosh symbol, is, without a doubt, an iconic brand widely recognized around the globe. The brand has been popular for decades, and still resonates today, not only with fitness buffs and sports athletes, but with consumers of virtually all walks of life.
To be sure, the athletic footwear space is fiercely competitive. But NIKE has certainly done a good job amassing market share over the years, combining brand strength with aggressive marketing to fuel demand. Though costly, the strategy seems to work well for the heavyweight. A dominant player in the shoe industry, NIKE has been successfully expanding into foreign markets, and broadening its reach in other categories, such as the women’s segment, where fitness is becoming increasingly important. It has also been making a greater push into soccer, a sport that’s been growing ever-more popular these days. Of course, what better time for NIKE to flex its marketing muscle than during the World Cup?
Indeed, major global sporting events, such as the Olympics and the FIFA World Cup, present tremendous advertising opportunities for the footwear giant to reach millions of people at once. NIKE has seen sales jump in recent months, thanks largely to heightened (soccer-inspired) demand. And investors have applauded this, sending its shares up nicely. (Note that the issue is currently trading a bit higher than the price shown on the Top Label of the Value Line report.)
Fundamentally speaking, NIKE is solid. This is easily gleaned from the Statistical Array (center of the page) and Quarterly boxes on the left side, which show a general uptrend in the company’s top and bottom lines. A look at the Annual Rates box reveals that growth rates have been quite strong over the past decade. This, in spite of lofty advertising expenses and currency exchange headwinds, both of which tend to keep margins largely in check. Based on analyst Craig Sirois’ projections, hearty double-digit advances for sales, cash flow, earnings, and dividends (on a per-share basis) are likely on tap through the upcoming three to five years, too.
Yet, NIKE stock is not necessarily for everyone. Its Timeliness rank (located in the Ranks box in the top left corner) is neither 1 nor 2 (out of a range of 5), so the issue is unsuitable for momentum-driven investors. On the surface, the Dow component does not seem that enticing for the long term, either, based on what appears to be limited price appreciation potential out to 2017-2019 (found in the Projections section). And the stock’s yield (Top Label) is just modest. Still, we would not dismiss NIKE.
The blue chip has several standout attributes that make it especially attractive for conservative types. Notably, as seen in the Ranks box, the stock features a stellar Safety rank of 1 (Highest), on a scale of 1 to 5, suggesting it is less risky that the average issue under Value Line review. Similarly, a Beta Coefficient of .75 indicates that the stock is less volatile than the broader market.
Metrics found in the Ratings box (lower right-hand corner) further support the stock’s excellent risk profile. In addition to the equity’s superior marks for Price Stability and Growth Persistence of 90 and 95, respectively, the company earns a top-notch score of A++ for Financial Strength, reflecting NIKE’s healthy balance sheet. Note the low level of debt (at 10% of Capital) and fairly bulky cash balance, just a few key items displayed in the Capital Structure and Current Position sections on the left.
Taking the whole picture into consideration, NIKE stock is a good pick for income-and-growth minded investors with a conservative tilt. Indeed, total return possibilities are respectable here, if estimated price appreciation and prospective dividends to be paid over the 3- to 5-year span are factored in together. As Mr. Sirois concludes in the Commentary, “though the issue is not timely, it has worthwhile risk-adjusted appreciation potential to 2017-2019.”
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.