Nike Inc. (NKE) Stock Analysis

Nike Inc. (NKE) Stock Analysis

Sector: Consumer Cyclical
Industry: Footwear & Apparel
Analysis Date: February 17, 2025

1. Company Overview

Nike Inc. (NYSE: NKE) is a global leader in the design, marketing, and distribution of athletic footwear, apparel, equipment, and accessories. Renowned for iconic brands such as Nike, Jordan, and Converse, the company has a far-reaching presence through a combination of wholesale distribution channels, direct-to-consumer (DTC) platforms, and digital engagement. Nike’s product portfolio spans running, basketball, soccer, and numerous other sports and lifestyle categories, making it one of the most recognized athletic brands worldwide.

Key Business Segments:

  • Footwear:
    • Performance & Lifestyle: Broad offerings targeting both professional athletes and everyday consumers.
  • Apparel:
    • Sports & Leisurewear: Inclusive of team kits, training gear, and casual wear for diverse demographics.
  • Equipment & Accessories:
    • Sports Equipment: Includes balls, bags, and other accessories that complement its core footwear and apparel segments.

Strategic Initiatives:

  • Direct-to-Consumer (DTC) Focus: Strengthening its e-commerce and brand stores to enhance margins and customer engagement.
  • Digital Transformation: Leveraging apps like Nike Run Club and SNKRS, and investing in personalization to deepen customer relationships.
  • Global Expansion: Expanding in emerging markets, while maintaining leadership in North America, Europe, and Greater China.
  • Product Innovation & Sustainability: Continual R&D investments in performance footwear and apparel, alongside sustainability efforts like “Move to Zero.”

2. Financial Performance

a. Revenue & Growth

  • TTM Revenue: $48.98 Billion
  • YoY Revenue Growth (TTM): -4.97%
    • (Prior fiscal year was slightly higher at $51.22B, reflecting a modest slowdown in the current TTM period.)

Analysis:
Nike’s top line remains robust despite a 4.97% dip over the trailing twelve months. The decline follows a period of strong post-pandemic growth and may reflect currency headwinds, supply chain disruptions, or shifts in consumer spending. However, Nike’s brand strength and DTC push continue to drive significant global sales.

b. Profitability

  • Net Income (TTM): $4.89 Billion
  • EPS (TTM): $3.24
  • Profit Margin: 9.98%
  • Return on Equity (ROE): 34.67%
  • Return on Assets (ROA): 9.84%

Analysis:
Nike maintains healthy profitability, with a nearly 10% net margin and a strong ROE of about 35%. While net income has softened from its previous peak, the company continues to deliver solid returns on equity and assets, underscoring efficient capital deployment and brand-driven pricing power.

c. Margins

  • Gross Margin: 44.73%
  • Operating Margin: 12.08%
  • EBITDA Margin: 13.80%

Analysis:
Nike’s gross margin remains in the mid-40s, a reflection of its pricing strategies and cost control measures. An operating margin above 12% illustrates effective overhead management, while an EBITDA margin of nearly 14% indicates robust operational profitability despite recent macroeconomic pressures.

d. Cash Flow

  • Operating Cash Flow (TTM): $6.12 Billion
  • Capital Expenditures (TTM): -$603 Million
  • Free Cash Flow (TTM): $5.52 Billion
  • FCF Per Share (TTM): $3.73

Analysis:
Nike generates substantial free cash flow, providing ample flexibility for dividends, share buybacks, and further investments in digital infrastructure and product innovation. The free cash flow margin of 11.27% supports ongoing shareholder returns and strategic growth initiatives.

3. Balance Sheet & Liquidity

  • Cash & Equivalents: $9.76 Billion
  • Total Debt: $12.07 Billion
  • Net Cash Position: -$2.30 Billion (approximately -$1.56 per share)
  • Current Ratio: 2.22
  • Debt-to-Equity Ratio: 0.86

Analysis:
Nike’s balance sheet shows a slight net debt position of $2.30 billion, but a comfortable current ratio above 2.0 indicates healthy short-term liquidity. The debt-to-equity ratio of 0.86 is moderate, reflecting a balanced approach to leverage. With substantial operating cash flow, Nike remains well-equipped to manage debt obligations while pursuing growth strategies.

4. Valuation

  • PE Ratio (TTM): 22.53
  • Forward PE: 39.07
  • PS Ratio: 2.24
  • PB Ratio: 7.71
  • P/FCF Ratio: 19.58
  • PEG Ratio: 15.39

Analysis:
Nike’s trailing PE of about 22.5 sits within historical norms for a high-quality consumer brand, though the forward PE near 39 suggests the market anticipates a potential slowdown or a period of elevated investment that may temporarily compress earnings. Valuation metrics such as PS, PB, and P/FCF remain elevated relative to the broader market, reflecting investor confidence in Nike’s long-term brand equity and growth prospects.

5. Market Performance

  • 52-Week Range: $68.62 – $106.62
  • 52-Week Price Change: -30.44%
  • Beta (5Y): 1.02
  • Average Volume (20 Days): ~12.56 Million shares
  • Short Interest: 28.96 Million shares (1.96% of outstanding)

Analysis:
Nike’s stock price has declined approximately 30% over the past year, reflecting broader market volatility and sector-specific challenges. A beta close to 1.0 indicates the stock’s volatility is similar to the market average. Moderate short interest (around 2% of shares outstanding) suggests a generally neutral to slightly cautious sentiment among investors.

6. Dividend & Shareholder Returns

  • Annual Dividend Per Share: $1.60 (TTM)
  • Dividend Yield: 2.19%
  • Dividend Growth: ~8.45% YoY
  • Payout Ratio: 49.36%
  • Buyback Yield: 2.60%
  • Shareholder Yield: 4.79%

Analysis:
Nike remains committed to returning capital to shareholders through both dividends and share repurchases. The company has a multi-year track record of dividend increases, and its current yield of about 2.19% is supported by a manageable payout ratio under 50%. Ongoing share repurchases have also contributed to a modest share count reduction (-2.60% YoY).

7. Risks & Considerations

1.  Consumer Demand Fluctuations: Shifts in consumer spending, especially in discretionary categories, can impact Nike’s sales and profitability.

2.  Supply Chain & Input Costs: Ongoing supply chain disruptions or rising input costs (raw materials, labor, freight) may pressure margins.

3.  Global Economic Conditions: Slower global economic growth or geopolitical uncertainties could dampen consumer demand in key regions.

4.  Intense Competition: The athletic apparel and footwear market is highly competitive, with rivals like Adidas and Under Armour vying for market share.

5.  Currency Exchange Volatility: Nike’s extensive global footprint exposes it to currency swings, which can affect reported revenue and margins.

8. Conclusion

Pros:

  • Strong Brand & Market Leadership: Nike maintains global dominance in athletic footwear and apparel, benefiting from a vast consumer base and innovative product lines.
  • Robust Cash Flow Generation: A TTM free cash flow of $5.52 billion underlines financial flexibility and supports shareholder returns.
  • Healthy Margins & Returns: Despite a recent dip in net income, Nike’s profitability metrics—particularly ROE near 35%—highlight its operational efficiency.
  • Consistent Dividend Growth & Buybacks: The company continues to reward shareholders through growing dividends and significant share repurchases.

Cons:

  • Elevated Valuation Multiples: Forward PE near 39.07 suggests the market is pricing in future growth, leaving limited margin for error if earnings growth slows.
  • Recent Revenue & Earnings Slowdown: A near-5% revenue drop TTM and softer net income growth reflect near-term headwinds.
  • Supply Chain & Macroeconomic Pressures: Ongoing logistical challenges and fluctuating consumer demand could weigh on sales and margins.

Final Note:
Nike remains a powerhouse in the global sportswear market, leveraging its brand strength, innovation pipeline, and DTC strategy to deliver steady long-term growth. While recent macroeconomic pressures and currency headwinds have tempered its revenue growth, Nike’s healthy free cash flow and robust profitability metrics underscore its resilience. Prospective investors should consider the stock’s relatively high valuation and the potential for near-term earnings volatility against the company’s proven track record of brand leadership and shareholder returns.

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

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