sonyaany on "nike trainers black and white"

sonyaany — Mon, 13 Jun 2016 07:09:37 +0000

The Game Is Still Going Strong For Nike

A visit to your local clothing store outlet, and I'd bet a significant amount of my wealth on the chance that you'll see Nike, Inc. (NYSE: NKE) present with a store packed with voracious shoppers. One of the most prevalent companies within the textile industry, Nike's operations generate millions of sales every year. Nike is one of those names that you need only mention once to investors before they go head over heels to buy the company's stock.

And it's not hard to Cheap Air Max 2016 Black see why this is the case. Just take a look at the company's Nike Air Max 2016 Mens stock chart.

Although the bull market that has had investors singing soprano for the past several years has been a boon for the market in general, it's been amazing for Nike. An investment three years ago would have generated more than a three fold return on investment, and it doesn't look like the stock is going to drop anytime soon. However, the fundamentals indicate that this premium may be warranted, as discussed below.

Buyers should still be able to be faithful and stick to the company, though. Turbulent market throughout the latter part of 2015 to early 2016 may cause temporary declines that may seem significant, but it is unlikely that the underlying fundamentals of Nike will change. The iconic clothing giant, as well as its never ending rising stock price, isn't going anywhere for the long run. Below, I will evaluate the company's fundamentals from a number of perspectives, cumulating in a DCF. This DCF yields an intrinsic share price of $135.00, which makes the company an excellent buy for the long term.

Nike operates within an incredibly competitive industry with relatively low barriers to entry, making the threat of new entrants constant. However, Nike is able to realize the benefits of economies of scale, which gives it a drastic competitive advantage over smaller companies. This is evident through Nike's margins, which have remained relatively unchanged since fiscal year 2005 despite the company's steady growth.

Source: NKE Company SEC Filings

Speaking of growth, Nike has maintained an average growth rate of 7.9% over the past five years, which is quite impressive given its enormous size. Even stretching back to fiscal year 2005, growth rates have been within the range of the upper single digits to lower teens, with the exception of fiscal years 2009 and 2010 (during the financial crisis) and fiscal year 2013.

Source: NKE Company SEC Filings

But has this growth actually generated any return for shareholders? Oh, yes. Plenty of it. Taking a look at the chart below, investors should note that, save for fiscal years 2009 and 2010, Nike generated a return on investment north of 20% since fiscal year 2005.

Source: NKE Company SEC Filings

But how does Nike achieve such great revenue growth, margins, and profitability? I attribute it to Nike's excellent advertising and marketing moves. Nike recently signed a contract with the NBA, which gives it the right to outfit the NBA come 2017 18. Furthermore, Nike also closed a deal with the University of Michigan, which would effectively be the largest in the nation. The deal gives Nike the right to outfit U of M for 10 years. Both of these deals will generate additional attention on the Nike brand, the lifeblood of the company. These deals could potentially serve as stock catalysts in the long term. Nike has had a history of signing deals with major respected institutions to keep the brand in the back of consumers' minds, and there are no signs that this deal flow Nike Air Max 2016 is drying up anytime soon.

Given these excellent fundamentals, I projected a five year DCF for Nike. Base case implied sales growth was projected to grow from Nike's 10 year trailing average of 8.5% to 10.0% at a linear rate. Worst and management cases were worse and better variations of this theme. COGS was held constant at 55.3% for all cases, in line with historical values. SG was projected to improve by around 10 basis points year on year throughout fiscal year 2020. D taxes, and capex were held constant at 2.0%, 24.7%, and 2.4%, in line with historical values. Change in working capital was projected to grow at a linear rate, in line with historical values.

A rather optimistic WACC of 6.6% was calculated, which was constructed by blending an after tax cost of debt of 2.5% with a cost of equity of 6.8%. Cost of equity was calculated by taking a weighted average of the company's revenue by geographic region.

As mentioned before, general macroeconomic conditions, most notable those occurring within Greece, Puerto Rico, and China, may spell turbulent times for the stock markets in the coming months. Be advised, these turbulent markets may generate dramatic declines in even the most fortified companies, and it is unlikely that the fundamentals of these companies are the issue. Investors should take care to keep their faith in solid companies such as Nike.

The decline for Nike may be more drastic than other companies. This is for two reasons, Nike Air Max Mens one fundamental and the other not so much. The first is that Nike has been a momentum stock for quite some time. Strong growth and returns to shareholders have attracted lots of attention from investors, and continued share purchases have launched the stock from a price of around $40 at the start of 2011 to more than $110 today. As investors know, if momentum stocks fail to deliver, the punishment can be severe.

The second is because Nike has a significant amount of its operations in emerging markets. Take a look at Nike's revenue breakdown for its Nike brand by geography for fiscal year 2014.

In fiscal year 2014, emerging markets alone accounted for more than 15% of Nike's Nike brand sales, a substantial amount. International sales accounted for more than 50% of sales. Emerging markets frequently take a harder hit when it comes to bear markets, and investor should take note of this when contemplating opening a position.

The numbers don't lie: Nike has done an outstanding job continuing its growth in today's competitive textile industry. With strong fundamentals and a solid growth plan ahead, Nike could be an attractive long term investment for investors who desire a good mixture of capital growth and stability. Although the stock is currently overvalued, market downturns caused by negative global macro events in the latter part of 2015 to early 2016 could present a buying opportunity to investors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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sonyaany on "nike trainers black and white"