Will Nike remain as King among apparel brands for years to come? Should you Invest in Nike Stock?

    1. Company & Business Strength: 10/10

Nike was founded in 1964 as Blue Ribbon Sports, & is known for its iconic slogan—"Just Do It". Nike is the largest supplier of athletic apparel & footwear. It also designs, manufactures, & markets its own line of sports equipment as well.

Nike operates in almost 170 countries and with approx. 73000+ stores. The trademark of Nike itself is worth a whopping 32 billion dollars alone.

Nike has a series of brand names under its banner including Air Jordan, Nike Golf, and Nike Pro. The company calls itself a ‘growth company’. Converse & Hurley are Nike’s core subsidiary brands. Converse designs markets, and distributes athletic lifestyle apparel, footwear, and accessories. Hurley, on the other hand, designs, markets, and distributes surf and youth lifestyle footwear, apparel, and accessories.

Nike Inc. is the largest manufacturer of athletic footwear, apparel, and equipment worldwide, by sales, with close to $42.3 billion in revenues in FY 2021.

NIKE has six significant distribution centers located in Memphis, Tennessee, two of which are owned and four of which are leased.

Nike is supplied by approximately 127 footwear factories located in 15 countries. The company sells its products under several brands, which include Nike, Nike Golf, Converse, Hurley, etc.

India is the third largest consumer in the world after US and China. Our population currently is at around 140 crores and brand brands like Nike can explore more into Asia to increase Sales.

Business Segment:

Nike’s market is divided into 4 main divisions geographically: 

North America: 41% of total revenue 

Europe, Middle East, and Africa: 26% of total revenue 

Greater China: 19% of total revenue 

Asia Pacific, Latin America: 14% of total revenue

Although the business is focused only on footwear, it still has a wide range of brands to meet consumer needs. Below is the business segment where the revenue comes from:

Running 

NIKE Basketball 

The Jordan Brand 

Women’s Training 

Action Sports 

Football (Soccer) 

Men’s Training 

Sportswear & Golf. 

Men’s Training includes baseball & American football product offerings.

2. Competitive Strength: 8/10

Although there are other competitors, Nike is still onat the Top of the Sneaker World.

It is one of the Big 3 in the Sports segment with competitors like Adidas & Reebok, Puma, and Asics. 

Although the rest of them are far away the only rival is Adidas with 2nd largest brand in Sales in the Sports world.

Nike has played well until currently with their new products and worldwide consumer acceptance on Air Jordon etc and would need to continue this trend in the future to remain at the top.

Nike is also been Innovative and disrupting its competitors with interesting Ads and wide brilliant products.

3. Stock Analysis Return & PE Ratio: 8/10

Nike Ltd Stock is listed both on NYSE and currently trading around $120 (Jan 2023), with a 52 high in the $170s and a low of $82s.

It has a market cap of $180bn+ which is a Large cap, Stock has been consolidating for a long time now due to uncertainty in raw material prices after the pandemic.

The stock has given a 3-year CAGR of 6% which is good considering uncertain periods. 

The face value is 1, so expect bonuses and buybacks.

PE Ratio: Nike has a PE of 32.6 currently which is expensive in the US market although it is a growing company.

4. Dividend: 10/10

The stock has been giving a fair dividend of 1.16%. Generally, we expect a growing company to give at least a 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 6/10

The Sales growth indicates that the company can capture the market, which may increase profitability. 

Nike has a 3-year median Sales growth of 7.67%  which is good. Current year (2022) growth stands at 4.88%. For Large caps, we consider the growth of at least 10%+ as healthy sales. 

6. Profit Growth: 9/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material price to end customers.

Nike's Profit growth stands at a 3-year median of 33.54% which is exceptional, Current year stands at 5.57%. For a Large cap, atleast 10% is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 10/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. Nike's ROE has a 3-year median of 24.6%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. Nike ROCE has a 3-year median of 37.6%.

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 4/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

Nike has a D/E of 0.85 which is bad. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

9. Shareholding %: 10/10

The company has a Promotor holding of 15%. The Institutional and mutual fund holdings are about of 39.51% and 42.78% indicate Institutions have very high holdings, and the Remaining are public and Individual holdings with around 4.19%.

Note: Generally, no pledging indicates a good sign.

Another indicator like interest coverage ratio, Return on Assets [ROA], and others also seems good.

10. Future Prospects: 8/10

Pros:

Nike acquired RFKT which helps in the future expansion of business.

Brand: The visibility of the brand is quite high.

Volume: Nike has sold the highest number of pairs of shoes as compared to competitors.

Revenue: In fiscal 2022, Nike is expecting revenue to grow a low double-digit percentage, surpassing $50 billion. Analysts were looking for annual revenue of $48.5 billion. The company anticipates the first half of the year to grow faster than the second half. 

Margin: The cost per pair is the lowest for Nike footwear at $22. Most of them go for Marketing and Ads, transport, and other expenses with around and retailers. Nike's profit is around $5 per shoe of cost $100.

Trend & Target Segment: The company seems to be going ahead in the right direction in expanding its retail network. The growing trend of premiumization in the footwear industry and the shift to branded footwear.

Cons:

The Sales growth is poor at least in the last few years.

 Competition may be tough ahead with brands like Adidas, Reebok, and Puma giving tough competition.

The debt has increased significantly after the pandemic which might be a bit concerning although it is a cash-rich company.

Short-term Supply chain issues, shortage of containers and warehouse.

Investment Hacks Score Card: 

The average score of Nike Footwears limited based on all factors comes to be 8.3/10.

Conclusion:

Overall Nike Footwears limited seems to have a good Product portfolio with a wide range of consumer needs. Brand visibility is getting higher in the world and more and more people are moving towards branded wear which would definitely increase the market share of organized players in which Nike has popularity.

Nike also has been so innovative and way ahead of competitors, in terms of Sales, Fan base, Niche Product portfolio, and marketing. The company is still the leader but investors should carefully watch future plans and products.

Nike’s success relies on anticipating customers’ demands. But these changing preferences are not always easy to predict. So, there is no certainty that every new product will gain the expected acceptance in the market. Also, investors should watch global Risks.

The stock has overall given excellent returns to shareholders in the past but is consolidating now due to the raw material cost increase, supply chain issues & lower Sales growth. Since this is still a leader in the stock segment, Investors can see less volatility in the future but should carefully watch plans and growth.

Disclaimer:

Since this is an educated opinion, Please research thoroughly or consult your financial advisor before Investment.

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Team Investment Hacks