Going long on Nike ($NKE)

Investment idea by DTI

Exchange: NYSE
SectorConsumer Goods
IndustryTextile - Apparel Footwear & Accessories

Entry strategy

Price: 69-71
Stop-loss: under 64.8
Take profit: first target 83, then 100
Investment horizon: up to 6 months

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Company details

Nike, Inc. is the biggest sportswear producer in the world. Apart from the self-titled brand, Nike's portfolio includes Converse and Hurley. Nike is a vertically-integrated company, producing, marketing and distributing its products.

The company's headquarters are located in Beaverton, Oregon. Its market capitalization is approximately $114 billion.

The financial overview of Nike can be found in Table 1:

Nike financial overview
Table 1. Key financials of Nike ($NIKE). Source: MarketWatch

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Technical analysis (trading plan)

Nike trading plan
Pic. 1. Trading strategy for Nike ($NKE). Source: TradingView

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Fundamental analysis

In Q1 2018 Nike's revenues grew by 7% and achieved $9 billion. However, due to the tax reform in the US, Nike had to pay extra $2 billion in taxes. That made the company unprofitable in Q1, with $921 million in losses (-$0.57 EPS).

Despite the loss, revenue growth was higher than market consensus, so $NKE stock continued to climb after the report. As of now, it is valued slightly above the market (see Table 2):

Nike valuation ratios
Table 2. Valuation ratios of Nike ($NKE). Source: Reuters

Nike's superior market performance can be considered justified: in addition to the dominant market share, the company boasts high profit margins and returns on investments (see Tables 3 and 4).

Nike profitability ratios
Table 3. Profitability ratios of Nike($NKE). Source: Reuters
Nike ROI
Table 4. RoA, RoI and RoE of Nike ($NKE). Source: Reuters

Finally, Nike is far ahead of its competitors when it comes to Quick ratio and Current ratio, which means that the company is more financially stable (see Table 5).

Nike valuation ratios
Таблица 5. Financial stability indicators of Nike ($NKE). Source: Reuters

One of the key growth drivers for Nike can be its efforts in developing digital selling channels. To support its internal team, Nike bought two startups just this year: computer vision venture Invertex and Zodiac, a platform for customer data analytics. The company is also boosting its shoe models with new platforms, VaporMax and React.

Additionally, Nike is going to continue its share buyback program, approved back in 2015. So far, Nike has spent $7.2 billion out of planned $12 billion on the matter.