Is It Time to Bet on Nike Stock?
One company that begs no introduction and is my hot favorite pick this holiday season is Nike, Inc. (NYSE:NKE). Nike is a market leader in specialty footwear and apparel and the brand is globally recognized. NKE stock has been a winner on the market, up over 32% year-to-date and over 192% in the last five years. Bears are shorting it, hoping the stock is overvalued at current levels, but I beg to differ. Here are my three top reasons why I remain bullish on Nike stock.
1. Margins! It’s All About Margins!
One criticism against specialty retailers is the cyclical nature of their business, in that when the economy goes down, it takes cyclical stocks down with it. Investment guru Warren Buffett’s philosophy is to look for businesses that boast high margins in their respective industries. That way, when inflation goes up or the economy goes down, high-margin companies are able to cut margins and remain profitable.
Now, what sets Nike apart from its peers in the industry is its high margins coupled with the highest returns on assets and equity. The only competitor anywhere close to the sports apparel company is Steve Madden, which still lags far behind Nike.
|Profit Margins||Operating Margins||Return on Assets||Return on Equity|
|Under Armour (UA)||5.82%||10.40%||9.56%||15.39%|
|Steve Madden (SHOO)||7.71%||11.97%||11.03%||15.89%|
|Deckers Outdoor (DECK)||8.06%||11.04%||8.47%||16.72%|
|Wolverine World Wide (WWW)||4.43%||9.02%||5.83%||12.29%|
Data source: Yahoo! Finance, last accessed November 20, 2015
2. Dividends, Splits, Buybacks, and More
Nike is rolling out a program to return handsome value to loyal NKE stockholders. Starting with a 14% increase in dividends and a $12.0-billion buyback initiative, the company has also announced a two-for-one stock split. Nike has a promising history including all three actions.
Nike has consistently stepped up its dividends in the past decade and has routinely bought back shares. Plus, this is the third time Nike is going for stock splits in the same period. The great thing about splits is that they create lower entry points for prospective buyers, thus boosting liquidity. More buyers for the stock suggests higher future prices. You see why I’m embracing this stock with open arms?
3. Wall Street Loves It!
Nike is a Wall Street darling; there’s no other way to put it. More than 80% of the company’s outstanding shares are currently held by institutions. The company enjoys a strong liking on the Street, where big guns like Goldman Sachs, Deutsche Bank, Macquarie, and Morgan Stanley, among others, all have a strong “Buy” rating on the stock, with an average price target of more than $140.00 per share. Billionaires like Stephen Mandel, Ken Griffin, and Steve Cohen are also invested in NKE stock. Would you want to bet against them?
The Bottom Line on NKE Stock
Nike has already fortified its worldwide foothold and is aiming to grow its business to more than $50.0 billion by 2020. With over 28% of the domestic market share and stellar success in emerging markets, especially China, Nike is on its way to claim these numbers.
The bottom line: investors would be fools to take the wrong side of the trade on NKE stock.