Nike: Olympic Pick
08/11/2016 7:00 am EST
In the spirit of the Olympics, analyst Glenn Rogers looks at a leading sports apparel retailer which he notes is front and center throughout the games. Here's the latest from the contributing editor to Internet Wealth Builder.
Nike (NKE) needs no introduction, given the global impact the brand has had over the last couple of decades.
It has dominated many of the team sports by forming relationships with key athletes and has benefited from those associations through product development and endorsements.
Nike's relationship with Michael Jordan was the gold standard; Air Jordan basketball shoes have outsold every other brand for many years, even though it has been a long time since Jordan stepped on a basketball court.
It's difficult to find anything sports related that does not have a Nike swoosh on it and the company has continued to innovate as its sales and distribution has expanded.
Nike now has the largest athletic sportswear research and development lab in the world. This gives them a distinct competitive advantage going forward as they are able to innovate and, because of their large volume, produce high quality products at lower prices than most of their competitors.
To be sure, there is serious competition, but sportswear is a very large and growing market, particularly in the developing countries around the world.
Overall, the company is forecasting 13% revenue growth year-over-year and the halo effect of the Rio Olympics may help as well.
Also, the company's e-commerce business grew at 55%, reaching over a billion dollars in revenue.
Last year the company did over $30 billion in sales (figures in US dollars), up from $27 billion the year before.
The company also expanded its gross margins by another 20 basis points and diluted earnings per share by 25%. Return on invested capital increased to 28.1%.
Despite all that, the stock got hit hard after the release of first-quarter results and is currently trading about 17% below its 52-week high.
This creates a buying opportunity. You are getting a global brand with solid growth in a competitive but vast global sports market, all at what I consider to be an attractive price.
Further, the market seems overdue for a pullback. In that environment, a stock with a strong balance sheet and solid prospects deserves a look.
By Glenn Rogers, Contributing Editor to Internet Wealth Builder