There Is No Other Nike

I wrote about the importance of economic moats in my 10 things to look for in a stock ebook. There are very few companies that have a greater economic moat than Nike (NKE). I have searched far and wide for a company that could pose a serious threat to Nike over the next few years. I have not found one yet.

Nike Analysis

Morningstar bases Nike’s economic moat on its “superior product development capabilities, globally recognized brands, tremendous economies of scale, and a solid foundation in several emerging markets”. I think that the Nike name and swoosh are easily worth billions of dollars in goodwill to the company.

Nike And Its Competition

Nike is still the world’s largest creator of athletic footwear and apparel. Nike  sells to more than 50,000 retail accounts, through a network of almost 700 company-owned stores, and through independent distributors and licensees in more than 170 countries. Nike owns the Cole Haan, Converse, Umbro, and Hurley brands.

Nike’s Biggest Threats

Adidas AG (ADDYY.PK) is the largest competitor to Nike in the athletic apparel and footwear market. The company owns the ADIDAS, Reebok, Reebok Hockey, CCM Hockey, Rockport, TaylorMade, adidas Golf, and Ashworth brands. Adidas AG has similar revenue numbers and more employees but the company’s products do have the cache of a Nike domestically.

Under Armour (UA) is a long-term threat to Nike. The company has been trying to gain market share in the footwear market and has made its apparel brand recognizable  throughout the United States. The stock has great growth potential and is a solid long-term play but the company is at least a decade away from being any sort of threat to the Swoosh.

Nike’s Financial Dominance

Financial statements are a critical component of stock investing. Nike’s dominance can be seen in its financials. Nike had a nine year streak of revenue growth from 2001 to 2009. The company fell $163 million dollars of a decade long steak of revenue growth last year. Nike’s net income is larger than its 7 largest competitors combined.The company has nearly $5 billion dollars in cash and just $600 million dollars in debt.

Gross margins are high at over 46%. The company only had one year last decade in which gross margins dipped below 46%. Earnings per share has grown 400% since 2001. Book value has tripled over the past decade and free cash flow has increased seven fold since 2001. Dividend payment are nearly 500% higher than they were in 2001.

Nike just keeps on producing. The company has  a proven track record of success and rewards it shareholders with increasing dividend payouts and a stock that keeps appreciating. Shares of Nike rose 206% from 2001 to 2010. I am a long time Nike shareholder and have been fully satisfied.

I wouldn’t run out and buy shares today as they look fully valued at $85 per share.  But I would look to add to my position in the $70′s. Nike still remains a premium franchise and the king of the athletic footwear market.

Stock Ind Avg
Price/Earnings TTM 20.7 27.2
Price/Book 4.1 3.3
Price/Sales TTM 2.1 1.7
Rev Growth (3 Yr Avg) 5.2 1.5
EPS Growth (3 Yr Avg) 9.6 -1.2
Operating Margin % TTM 13.5 8.8
Net Margin % TTM 10.3 3.5
ROE TTM 21.2 7.4
Debt/Equity 0.0 0.2

Comments

  1. avatar krantcents says:

    The strength of Nike is their dominance in professional sports. Their dominance provides free advertising during a lot of sports presentations on TV.. This spills over into the consumer market. They are able to keep their manufacturing costs low and margins high because of overseas manufacturing.

    • avatar Mark says:

      I agree with overseas manufacturing keeping costs lower. They pay a lot for the sports advertising however. They have to bid for those contracts and the endorsement deals with athletes are very pricet.

  2. avatar MoneyCone says:

    And not to mention, NIKE does make great products! PE isn’t too bad. In fact NIKE managed to keep up this PE in these times speaks about investor confidence in this company!

  3. avatar Evan says:

    Mark, does the .pk on Adidas mean they are trade on the pink sheets?! Kind of odd for such a huge company, right?

  4. I gotta say, this is an article I would rather not read :) I owned NIKE back in the day. I think I held it for about 2 years with little benefit other than the measley dividend. I believe I sold it at about $53. I hate to see a stock I sold go up in value (even though I think I owned it over 10 years ago). Actually, even if I had held it the whole time, my return would have been rather low. Whew, I feel better after all.

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