I am neutral on Nike (NKE) because the company’s strong growth momentum and powerful global brand are offset by its high valuation levels.
Nike is a leading American multinational corporation in the design, manufacture and distribution of athletic footwear, apparel and accessories for a wide range of athletic and outdoor activities. The company’s head office is based in Beaverton, Oregon. (See the top analyst stocks on TipRanks)
Nike is the world’s largest supplier of athletic footwear and a leading manufacturer of sporting goods with annual sales of $ 44.54 billion.
The company employs more than 76,700 people worldwide and is ranked 85th in the 2021 Fortune 500 list which highlights America’s largest companies by revenue.
The company markets its products under its own brands, as well as Nike +, Air Jordan, Nike Pro, Nike Golf, Nike Blazers, Nike Dunk, Air Max, Nike Skateboarding, Nike CR7, Foamposite and subsidiaries including the Converse and Jordan brands. The company sponsors dozens of top athletes around the world.
Nike reported revenue of $ 12.2 billion for the first quarter of fiscal 2022, showing a 16% year-over-year increase. Its net income was $ 1.9 billion, an increase of 23%, with the company posting earnings of $ 1.16 per share, up 22%.
Revenue for the Nike brand segment was $ 11.6 billion, an increase of 12% over the previous year on a currency neutral basis. This was led by the double-digit growth of Nike Direct in North America, EMEA and APLA.
Converse revenue was $ 629 million, an increase of 7% on a currency neutral basis. This was led by the improvement in Direct’s performance in North America and Europe.
Nike Direct sales improved 28% to $ 4.7 billion. The brand’s digital sales increased 29%. The company’s gross margin also increased to 46.5%.
Nike said its cash, cash equivalents and short-term investments were $ 13.7 billion, an increase of about $ 4.2 billion from last year due to the strong generation of cash flow which was partially offset by share buybacks and dividends.
The company attributed its strong performance in the first quarter of fiscal 2022 to its excellent customer relationships, continuous improvement and adoption of digital technology.
Nike stock appears to be well valued at current levels. Its EV / EBITDA multiple is currently 33x, which is well above its five-year average of 22.9x.
Additionally, its P / E ratio is 45.2x, which is also well above its five-year average of 31.7x.
That said, growth is expected to be strong over the next few years, as revenue is expected to increase 5.8% in 2022 and 14.6% in 2023, and normalized EPS is expected to increase 34.2% in 2023.
The Taking of Wall Street
From Wall Street analysts, Nike is getting strong buy analyst consensus based on 17 buy ratings, three sustain ratings and zero sell ratings over the past three months.
Additionally, Nike’s average price target of $ 181.53 places the upside potential at 7.4%.
Summary and conclusions
Nike is a fantastic company with one of the biggest brands in the world. It is currently experiencing strong growth and Wall Street analysts are extremely bullish on the stock here.
That said, the share price looks a bit expensive here, as the valuation multiple is trading at a significant premium over the company’s five-year averages on an EV / EBITDA and P / E basis.
Disclosure: At the time of publication, Samuel Smith does not have a position in any of the titles mentioned in this article.
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