NIKE, Inc. (NKE) Stock Analysis

Market Capitalization: $114.38 Billion
Shares Outstanding: 1.49 Billion
Sector: Consumer Discretionary
Industry: Footwear & Apparel
Analysis as of: December 19, 2024

1. Company Overview

NIKE, Inc. (NYSE: NKE) is a global leader in the design, development, marketing, and sales of athletic footwear, apparel, equipment, and accessories. Founded in 1964 and headquartered in Beaverton, Oregon, Nike has established a strong brand presence worldwide, synonymous with innovation, quality, and performance in the sportswear industry. The company’s iconic “Swoosh” logo and “Just Do It” slogan are recognized globally, contributing to its dominant market position.

Key Business Segments:

• Footwear:
  
  • Performance Footwear: High-performance athletic shoes for various sports, including running, basketball, soccer, and training.
  • Lifestyle Footwear: Fashion-forward sneakers and casual shoes catering to everyday wear and street style.
• Apparel:
  
  • Performance Apparel: Technical sportswear designed for athletes, incorporating advanced materials for enhanced performance.
  • Lifestyle Apparel: Trend-driven clothing lines targeting a broad consumer base, emphasizing comfort and style.
• Equipment & Accessories:
  
  • Sports Equipment: Products such as balls, bags, and protective gear tailored for specific sports.
  • Accessories: Items including hats, socks, and wearable technology that complement footwear and apparel offerings.
• Direct-to-Consumer (DTC) Sales:
  
  • Nike.com and Nike App: Online platforms facilitating direct sales to consumers, offering personalized shopping experiences and exclusive products.
  • Retail Stores: A network of flagship stores and outlet locations providing immersive brand experiences and customer engagement.

Strategic Initiatives:

• Digital Transformation: Enhancing e-commerce capabilities and leveraging data analytics to personalize marketing and improve supply chain efficiency.
• Sustainability Efforts: Committing to environmentally responsible practices, including the use of sustainable materials and reducing carbon footprint.
• Product Innovation: Investing in research and development to create cutting-edge products that meet evolving consumer demands and athletic performance standards.
• Global Market Expansion: Penetrating emerging markets to increase global footprint and diversify revenue streams.

2. Financial Performance

a. Revenue and Growth

TTM Revenue (as of Aug 31, 2024): $50.01 Billion
YoY Revenue Growth (TTM): -2.83%

 

Analysis:

• Stable Revenue Base: NIKE maintains a robust revenue base, consistently generating over $37 billion annually. The slight decline of -2.83% in TTM revenue indicates potential market saturation or increased competition.
• Moderate Growth Rates: While recent years have shown steady growth, the slowdown in revenue growth suggests challenges in maintaining high growth rates, possibly due to market maturity or economic headwinds.
• Diversified Revenue Streams: The company’s diverse product portfolio and global presence help mitigate risks associated with dependence on a single market or product category.

b. Profitability

Net Income (TTM): $5.30 Billion
EPS (TTM): $3.49
Profit Margin: 10.60%
Return on Equity (ROE): 37.98%
Return on Assets (ROA): 10.65%

Analysis:

• Strong Net Income: NIKE’s net income of $5.30 billion demonstrates its ability to generate substantial profits from its operations, reflecting effective cost management and high-margin product lines.
• Healthy Profit Margins: A profit margin of 10.60% indicates efficient conversion of revenue into profits, showcasing the company’s strong pricing power and operational efficiency.
• Impressive ROE and ROA: ROE of 37.98% and ROA of 10.65% highlight NIKE’s exceptional ability to generate returns on shareholders’ equity and assets, underscoring effective management and asset utilization.

c. Margins

Gross Margin (TTM): 44.97%
Operating Margin (TTM): 12.71%
Profit Margin (TTM): 10.60%

Analysis:

• Solid Gross Margin: A gross margin of 44.97% reflects NIKE’s strong control over production costs and ability to maintain premium pricing on its products.
• Positive Operating Margin: An operating margin of 12.71% indicates effective management of operating expenses relative to gross profit, contributing to overall profitability.
• Consistent Profit Margin: Maintaining a profit margin above 10% demonstrates the company’s sustained profitability and resilience in competitive markets.

d. Cash Flow

Operating Cash Flow (TTM): $7.89 Billion
Capital Expenditures (CapEx) (TTM): -$679 Million
Free Cash Flow (FCF) (TTM): $7.21 Billion
FCF Per Share: $4.75

Analysis:

• Robust Operating Cash Flow: Operating cash flow of $7.89 billion indicates strong cash generation from core business activities, providing ample liquidity for investments, debt repayment, and shareholder returns.
• Manageable Capital Expenditures: CapEx of -$679 million suggests that NIKE is investing in maintaining and expanding its infrastructure and technology, essential for sustaining growth and operational efficiency.
• Healthy Free Cash Flow: FCF of $7.21 billion underscores NIKE’s ability to generate significant cash after accounting for capital expenditures, supporting strategic initiatives and enhancing shareholder value.

3. Balance Sheet

Total Assets: $37.87 Billion
Total Liabilities: $23.92 Billion
Shareholders’ Equity: $13.95 Billion
Total Debt: $12.13 Billion
Cash & Equivalents: $10.29 Billion
Net Cash Position: -$1.83 Billion
Debt-to-Equity Ratio: 0.87
Current Ratio: 2.36
Quick Ratio: 1.42
Working Capital: $14.41 Billion

Analysis:

• Balanced Financial Structure: With total assets of $37.87 billion against liabilities of $23.92 billion, NIKE maintains a solid financial foundation, ensuring stability and the capacity to fund operations and growth.
• Manageable Debt Levels: A debt-to-equity ratio of 0.87 indicates a balanced approach to leveraging debt, providing capital for expansion while maintaining financial flexibility.
• Strong Liquidity: Current ratio of 2.36 and quick ratio of 1.42 demonstrate NIKE’s ability to cover short-term liabilities comfortably, minimizing liquidity risks.
• Positive Working Capital: Working capital of $14.41 billion ensures that the company has sufficient resources to support its day-to-day operations and invest in growth opportunities.

4. Valuation

Current Stock Price (Dec 19, 2024): $76.90
PE Ratio (TTM): 22.00
Forward PE: 28.51
PEG Ratio: 5.68
Price-to-Sales (PS) Ratio: 2.32
Price-to-Book (PB) Ratio: 8.22
Price-to-Free Cash Flow (P/FCF) Ratio: 15.92
Price-to-Operating Cash Flow (P/OCF) Ratio: 14.55
EV/EBITDA: 16.19
EV/Sales: 2.33

Analysis:

• Reasonable PE Ratio: A trailing PE ratio of 22.00 and a forward PE of 28.51 suggest that NIKE is fairly valued relative to its earnings. The higher forward PE indicates anticipated growth in earnings.
• Moderate PEG Ratio: A PEG ratio of 5.68 reflects that the stock may be slightly overvalued based on its earnings growth expectations. Investors should consider the sustainability of growth rates when assessing valuation.
• Attractive PS and PB Ratios: PS ratio of 2.32 and PB ratio of 8.22 indicate that NIKE is trading at a reasonable premium relative to its sales and book value, aligning with its strong brand and market position.
• Solid EV Ratios: EV/EBITDA of 16.19 and EV/Sales of 2.33 demonstrate that NIKE is valued reasonably in relation to its earnings before interest, taxes, depreciation, and amortization and its revenue, respectively.
• Competitive Free Cash Flow Valuation: P/FCF ratio of 15.92 and P/OCF ratio of 14.55 suggest that the stock is trading at a moderate premium relative to its free and operating cash flows, reflecting investor confidence in its cash-generating capabilities.

5. Market Performance

52-Week Range: $70.75 – $123.30
52-Week Price Change: -36.54%
Beta (5Y): 1.02
Relative Strength Index (RSI): 45.96
Average Volume (20 Days): 8,903,172
Short Interest: 25.28 Million (1.70% of Shares Outstanding)
Short Ratio (Days to Cover): 2.36

Analysis:

• Significant Price Decline: NIKE’s stock has decreased by 36.54% over the past 52 weeks, indicating negative investor sentiment or broader market challenges impacting the company.
• Market-Aligned Volatility: A beta of 1.02 suggests that NIKE’s stock volatility is in line with the overall market, experiencing similar price fluctuations.
• Neutral RSI: An RSI of 45.96 indicates that the stock is neither overbought nor oversold, maintaining balanced momentum without extreme price pressure.
• High Trading Volume: An average volume of 8.9 million over the past 20 days reflects strong liquidity and active trading, facilitating ease of entry and exit for investors.
• Low Short Interest: With 1.70% of shares outstanding sold short and a short ratio of 2.36 days to cover, bearish sentiment exists but is not excessively high, reducing the likelihood of a short squeeze.

6. Financial Health and Risks

a. Liquidity

Current Ratio: 2.36
Quick Ratio: 1.42

Analysis:

• Strong Liquidity Position: NIKE’s current and quick ratios indicate a robust ability to meet short-term obligations without relying heavily on external financing, ensuring financial stability.
• Sufficient Working Capital: Positive working capital of $14.41 billion provides a significant buffer for operational needs and strategic investments.

b. Leverage

Total Debt: $12.13 Billion
Debt-to-Equity Ratio: 0.87
Debt-to-EBITDA Ratio: 1.47
Debt-to-FCF Ratio: 1.68
Interest Coverage Ratio: 22.63

Analysis:

• Balanced Leverage: A debt-to-equity ratio of 0.87 signifies a balanced approach to leveraging debt, providing capital for expansion while maintaining financial flexibility.
• Manageable Debt Levels: Debt-to-EBITDA ratio of 1.47 indicates that NIKE can comfortably service its debt with its earnings before interest, taxes, depreciation, and amortization.
• Healthy Interest Coverage: An interest coverage ratio of 22.63 demonstrates NIKE’s strong ability to meet interest obligations from its earnings, significantly reducing default risk.

c. Profitability & Cash Flow

• Robust Profitability: NIKE’s net income of $5.30 billion and profit margin of 10.60% highlight the company’s strong earnings generation and operational efficiency.
• Healthy Cash Flow: Operating cash flow of $7.89 billion and free cash flow of $7.21 billion indicate substantial cash generation from core business activities, supporting strategic investments and shareholder returns.
• Efficient Capital Allocation: Positive free cash flow allows NIKE to invest in research and development, expand its product lines, and pursue strategic acquisitions to drive growth.

d. Operational Risks

• Market Competition: Operating in the highly competitive footwear and apparel industry, NIKE faces challenges from established brands like Adidas, Under Armour, and emerging players. Intense competition could pressure margins and market share.
• Supply Chain Disruptions: Dependence on global supply chains exposes NIKE to risks related to geopolitical tensions, trade restrictions, and logistical challenges, potentially impacting product availability and costs.
• Brand Dependency: NIKE’s strong brand is a significant asset, but it also creates vulnerability. Any negative publicity or decline in brand perception could adversely affect sales and market position.
• Technological Changes: Rapid advancements in retail technology and consumer preferences require continuous innovation. Failure to adapt to digital transformation trends could hinder NIKE’s competitive edge.

e. Market & Regulatory Risks

• Economic Downturns: Adverse economic conditions can reduce consumer spending on discretionary items like athletic footwear and apparel, impacting NIKE’s revenue and profitability.
• Regulatory Compliance: Navigating diverse regulatory environments across different regions, including labor laws, environmental regulations, and trade policies, can increase operational complexities and costs.
• Intellectual Property Risks: Protecting proprietary designs and technologies is crucial. Infringement issues could lead to legal disputes and loss of competitive advantage.
• Sustainability Pressures: Increasing focus on sustainability requires NIKE to continuously improve its environmental practices. Failure to meet sustainability standards could result in reputational damage and loss of consumer trust.

7. Conclusion

Pros:

• Strong Financial Performance: NIKE showcases robust revenue generation, high profitability, and substantial cash flow, reflecting its dominant position in the athletic footwear and apparel market.
• Leading Brand Presence: As a globally recognized brand, NIKE benefits from strong customer loyalty, premium pricing power, and extensive market penetration.
• Healthy Balance Sheet: With a solid net cash position, manageable debt levels, and strong liquidity ratios, NIKE maintains financial stability and flexibility for strategic initiatives.
• Consistent Dividend Growth: NIKE’s consistent dividend growth over 21 years, with an attractive dividend yield of 2.08%, appeals to income-focused investors.
• Effective Cost Management: Maintaining stable gross and operating margins indicates effective cost control and operational efficiency.

Cons:

• Slowing Revenue Growth: The recent decline in revenue growth (-2.83% YoY) may signal market saturation or increased competition, potentially limiting future growth prospects.
• High Valuation Metrics: While NIKE’s PE ratio of 22.00 is reasonable, the forward PE of 28.51 and PEG ratio of 5.68 suggest that the stock may be slightly overvalued based on growth expectations.
• Price Decline: A 36.54% decline in stock price over the past 52 weeks indicates negative investor sentiment or market challenges impacting the company’s valuation.
• Operational Risks: Challenges related to market competition, supply chain disruptions, and technological changes pose risks to NIKE’s operational performance and market position.
• Leverage Concerns: Although manageable, the debt-to-equity ratio of 0.87 indicates reliance on debt financing, which could become a concern if earnings decline or interest rates rise.

Final Note:

NIKE, Inc. remains a formidable player in the athletic footwear and apparel industry, leveraging its strong brand, extensive global presence, and commitment to innovation to drive growth and profitability. The company’s ability to generate substantial cash flows and maintain a healthy balance sheet provides a solid foundation for sustaining its competitive advantage and pursuing strategic opportunities. However, investors must balance these strengths against the challenges of slowing revenue growth, high valuation metrics, and operational risks. Comprehensive analysis and a clear understanding of the associated risks are essential for making informed investment decisions related to NIKE.

Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing involves risks, including potential loss of principal. Past performance is not indicative of future results. Consult a qualified financial advisor before making any investment decisions.