Fundamental Fridays: Nike, Inc

In the fourth installment of Fundamental Fridays, TST will examine Nike, Inc.

Nike, Inc. (Ticker: NKE) is an athletic apparel company.  Nike was founded in 1964 and is based in Beaverton, Oregon. In the past 52 weeks, shares of Nike have traded as low as $42.68 and as high as $70.60.  Shares closed yesterday at $52.69.  Let’s check out the fundamentals.

Valuation measures – Data from Reuters and ADVFN Financials

Price-earnings - Compares the current market value per share to the earnings per share.  P/E ratio for NKE: 13.62, P/E industry average: 12.16,  P/E sector average: 7.09. Signal: OVERVALUED

Price-sales – Compares the current market value per share to the revenue per share.  P/S ratio for NKE: 1.24 , P/S industry average: 1.12,  P/S sector average: 0.38   Signal: OVERVALUED

Price-cash flow – Compares the current market value per share to the cash flow per share.  P/CF ratio for NKE: 11.23, P/CF industry average: 3.90, P/CF sector average: 2.12   Signal: OVERVALUED

Some analysts use earnings or sales with the following formula to solve for a stock’s expected price.  The formula below typically uses price multiple ratios based on 5-year averages.

Expected stock price = historical P/E average x Current EPS(1 + EPS growth rate) = 18.3 x  3.736(1+.2199) = $83.40  SIGNAL: UNDERVALUED since Nike currently trades at $52.98

NOTE: The same formula can be used substituting sales or cash flow per share in place of earnings. 

Profitability Measures 

Return on Assets – Net income relative to total assets.  ROA for NKE: 15.45%, ROA industry average: 11.2%

Return on Equity – Net income relative to total equity.  ROE for NKE: 23.71%, ROE industry average: 18.23%

Profit margin – Net income relative to revenue.  PM for NKE: 9.4%, PM industry average: 7.35%

Bottom Line:  Nike is more profitable relative to its competitors. P/E and P/S ratios are higher than the competition by a small margin. Nike has EPS growth  and dividend growth that beat industry and sector averages.

Based on the ratios used today, TST’s Fundamental Friday Recommendation for Nike: BUY

Ratios should always be evaluated relative to a company’s competitors, sector and industry averages to see how the company stacks up.  Ratios should never be used as the sole basis for trading decisions. The data used is pulled from financial statements which have been known to be subject to manipulation and varying accounting practices.