NIKE, INC.
Ticker Symbol: NKE (NYSE)
Sector: Consumer Cyclical
Industry: Footwear
FUNCTION:
NIKE, Inc. is engaged in the design, development and worldwide marketing of footwear,
apparel, equipment and accessory products. It sells its products to approximately 18,000
retail accounts in the United States and through a mix of independent distributors,
licensees and subsidiaries in nearly 200 countries. NIKE's athletic footwear products are
designed for specific athletic use, although some of its products are worn for casual or
leisure purposes. The Company creates designs for men, women and children. Running,
basketball, children's, cross-training and women's shoes are the Company's top-selling
product categories. NIKE also markets shoes designed for outdoor activities, tennis, golf,
soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities,
hiking and other athletic and recreational uses. NIKE sells active sports apparel that
covers most of these categories, athletically inspired lifestyle apparel and others.
FINANCIAL SNAPSHOT
Sales/Revenue: $10,697,000,000 (TTM)
Market Capitalization: $16,613,750,000
Industry Ranked: Number One (Market Capitalization)
Number One (Sales)
Fundamental Analysis:
A- Equity Valuation
Ratio
DDM
Company
$6.621
Industry
Sector
Market
P/E
21.55
20.33
19.16
24.79
PEG
7.81
7.08
3.07
3.73
PSR
1.55
1.37
1.15
3.43
P/B
3.94
3.56
3.39
4.28
Beta
0.72
0.75
1.03
1.00
Comparison
Based on the DDM, NIKE’s
stock intrinsic value is $6.62.
NIKE’s stock is presently
trading at $63.90. This would
suggest that the price of
NIKE’s stock is significantly
overvalued compared to its
intrinsic value.
P/Eco>P/EInd and P/ESec
NIKE’s P/E Ratio is slightly
higher than the industry and
the sector indicating that the
company is slightly
overvalued.
PEGco > PEGInd and PEGSec.
NIKE is overvalued.
PRSco > PSRInd and PSRSec
NIKE’s PSR is less than 3,
indicating the company is
undervalued.
PBco>1 which indicates that
the company is overvalued.
Betaco < 1. This stock is less
risky compared to stocks in
this industry and sector.
Conclusion of Equity Valuations:
NIKE’s P/E, PSR and P/B of 21.55, 1.55, and 3.94 are quite similar to the averages of its
industry and sector. Hence, NIKE can be considered to be fairly valued. However, based
on the DDM model, NIKE’s stock price of $63.90 is significantly overvalued compared
to its intrinsic value of $6.62.
1
Do = 0.56
Growth (5 year) = 0.0874
Ks = 12%
V = $6.62
B- Financial Strength Analysis
Category
1GROWTH
RATE
Ratio
5 years
Growth of
Sales
Company
2.29%
Industry
4.19%
Sector
8.14%
Market
9.72%
5 years
Growth of
EPS
15.34%
14.80%
6.01%
10.38%
Comparison
The sales growth
of NIKE is lower
compared to the
industry and sector
averages.
The EPS growth of
NIKE is higher
compared to the
industry and sector
averages.
Growth of Sales
5 Year Sales Growth
3 Year Trend Analysis
15.0%
10.0%
Nike
Industry
5.0%
0.0%
2000
2001
2002
Year
Interpretation:
NIKE’s 5 year sales growth has declined substantially from 2000 to 2002. In 2002, its 5
year sales growth was lower than its industry average.
Growth of EPS
5 Year Growth of EPS
3 Year Trend Analysis
20.0%
15.0%
10.0%
Nike
5.0%
Industry
0.0%
-5.0%
2000
2001
Year
2002
Interpretation:
NIKE’s 5 year EPS growth has been on a downward trend, and its 2002 figure was in
negative territory. Moreover, its industry average was much higher than NIKE’s 5 year
EPS growth in 2002.
Category
Ratio
Company
2Operating 13.81%
PROFITABILITY Margin
Net Profit
Margin
7.18%
Industry
12.52%
Sector
11.03%
Market
18.91%
6.64%
4.79%
11.73%
Comparison
The Operating
Profit margin of
NIKE is higher
than the industry
and sector
averages.
The Net Profit
margin of NIKE
is higher than the
industry and
sector averages.
Operating Margin
Operating Margin
3 Year Trend Analysis
11.0%
10.8%
10.6%
10.4%
10.2%
10.0%
9.8%
Nike
Industry
2000
2001
2002
Year
Interpretation:
This chart shows NIKE’s operating margin was higher than the industry average in 2002.
In 2002, NIKE’s operating margin rebounded from a decline it experienced in 2001.
Net Profit Margin
Net Margin
3 Year Trend Analysis
6.8%
6.6%
6.4%
6.2%
6.0%
5.8%
Nike
Industry
2000
2001
2002
Year
Interpretation:
After a decline in net margin for NIKE in 2001, its net margin increased substantially in
2002, and is close to its industry average.
Category
Ratio
3ROI
MANAGEMENT
EFFECTIVENESS
ROE
Company
16.71%
Industry
16.12%
Sector
8.49%
Market
9.64%
20.12%
19.15%
16.12%
17.86%
Return on Equity
ROE
3 Year Trend Analysis
19.5%
19.0%
18.5%
18.0%
17.5%
17.0%
Nike
Industry
2000
2001
Year
2002
Comparison
The return on
investment of NIKE
is slightly higher than
the industry average
but almost twice its
sector average.
The return on equity
of NIKE is higher
than the industry and
sector averages.
Interpretation:
NIKE’s ROE has been stagnant from 2000 to 2002, and its ROE was lower than the
industry average in 2002.
Category
Ratio
4Inventory
EFFICIENCY Turnover
RATIO
Asset
Turnover
Company Industry
4.37x
4.41x
Sector
9.25x
Market
9.96x
1.67x
1.19x
0.93x
1.76x
Comparison
The inventory turnover
of NIKE is lower than
the industry and sector
averages. This indicates
that NIKE inventory
turnover is slower
compared to those in its
industry and sector.
The asset turnover of
NIKE is lower than the
industry average but
higher than the sector
average. This indicates
that the company does
not utilize its assets as
well as those in its
industry but they do
utilize its assets better if
compared to the sector.
Inventory Turnover
Inventory Turnover
3 Year Trend Analysis
4.4
4.3
4.2
4.1
4.0
3.9
3.8
Nike
Industry
2000
2001
2002
Year
Interpretation:
After declining slightly in 2001, there was a sharp upturn in NIKE’s inventory turnover
in 2002.
Asset Turnover
Asset Turnover
3 Year Trend Analysis
1.8
1.8
1.7
1.7
1.6
1.6
1.5
Nike
Industry
2000
2001
2002
Year
Interpretation:
NIKE’s asset turnover was very flat from 2000 to 2002. Moreover, its asset turnover was
lower than its industry average in 2002.
Category
5DEBT
RATIO
Ratio
Company
0.23x
Total
Debt/Equity
Interest
Coverage
28.54x
Industry
0.22x
Sector
4.03x
Market
0.98x
25.33x
8.68x
12.96x
Comparison
The debt/equity
ratio of NIKE is
comparable to its
industry average.
This indicates that
NIKE is as
leveraged as those
in its industry.
However, the
debt/equity ratio
of NIKE is lower
than its sector
average,
indicating that
NIKE is not as
leveraged as those
in its industry.
The interest
coverage ratio of
NIKE is higher
than the industry
and sector
averages. This
indicates that
NIKE can meet its
fixed obligations
much better than
those in its
industry and
sector.
Debt/Equity
Total Debt/Total Equity
3 Year Trend Analysis
0.25
0.20
Nike
0.15
0.10
Industry
0.05
0.00
2000
2001
2002
Year
Interpretation:
NIKE’s debt to equity ratio has increased in 2002, after a decline in 2001. However,
NIKE is still below its industry average as far as its leverage is concerned.
Category
Ratio
6Quick
LIQUIDITY Ratio
RATIO
Current
Ratio
Company
1.52x
Industry
1.76x
Sector
1.26x
Market
1.26x
2.48x
2.94x
2.16x
1.76x
Comparison
The quick ratio of
NIKE is lower
than the industry
average, but
higher than its
sector average.
This indicates
that NIKE is less
liquid than those
in its industry, but
it is more liquid
than those in its
sector.
The current ratio
of NIKE is higher
than the sector
averages, but
lower than the
industry average.
This indicates
that NIKE is
more liquid than
those in its sector,
but it is less
liquid than those
in its industry.
Quick Ratio
Quick Ratio
3 Year Trend Analysis
2.00
1.50
Nike
1.00
Industry
0.50
0.00
2000
2001
2002
Year
Interpretation:
NIKE’s quick ratio has been increasing steadily from 2000 to 2002 although its figure in
2002 was still lower than its industry average.
Current Ratio
Current Ratio
3 Year Trend Analysis
4.00
3.00
Nike
2.00
Industry
1.00
0.00
2000
2001
Year
2002
Interpretation:
The current ratio of NIKE has been slowly increasing from 2000 to 2002. However, its
current ratio in 2002 was slightly lower than its industry average.
Conclusion of Financial Strength Analysis:
NIKE scores better than the industry and sector averages in the following factors (twelve
trailing months): 5 year EPS growth (15.34%), operating margin (13.81%), ROI
(16.71%), ROE (20.12%), and interest coverage (28.54%) ratios. NIKE is a world leader
in footwear and proves to be very competitive within its industry and its sector posting
results that are slightly higher than its industry and sector averages in several areas.
Technical Analysis:
1-Relative Strength Index:
The Relative Strength Index ("RSI") is a popular oscillator.
The name "Relative
Strength Index" is slightly misleading as the RSI does not compare the relative strength
of two securities, but rather the internal strength of a single security. The RSI is a pricefollowing oscillator that ranges between 0 and 100. A popular method of analyzing the
RSI is to look for a divergence in which the security is making a new high, but the RSI is
failing to surpass its previous high. This divergence is an indication of an impending
reversal. When the RSI then turns down and falls below its most recent trough, it is said
to have completed a "failure swing." The failure swing is considered a confirmation of
the impending reversal. Movements above 70 are considered overbought, while an
oversold condition would be a move under 30.
Figure 1: Nike
_1year price chart
Interpretation:
NIKE’s RSI is at the 60 level. This would indicate a HOLD position for NIKE.
Figure 2: Nike compared to the Market
_1year price chart
Interpretation:
In figure 2, NIKE’s price movement has quite similarly followed the trend of the market
the last 12 months. However, they are currently outperforming the market. Although the
market trend seems to be taking an upward turn, NIKE stock seems to be overbought.
This verifies that it is not a good time to buy.
Figure 3: Nike compared to Puma
1year price chart
Interpretation:
Figure 3 illustrates that PUMA has outperformed NIKE for the last 12 months. I will still
maintain a HOLD position on NIKE.
2-Bollinger Bands:
Bollinger Bands are similar to moving average envelopes. The difference between
Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and
below a moving average, whereas Bollinger Bands are plotted at standard deviation
levels above and below a moving average. Since standard deviation is a measure of
volatility, the bands are self-adjusting: widening during volatile markets and contracting
during calmer periods.Bollinger Bands are usually displayed on top of security prices, but
they can be displayed on an indicator. These comments refer to bands displayed on
prices. As with moving average envelopes, the basic interpretation of Bollinger Bands is
that prices tend to stay within the upper- and lower-band. The distinctive characteristic of
Bollinger Bands is that the spacing between the bands varies based on the volatility of the
prices. During periods of extreme price changes (i.e., high volatility), the bands widen to
become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands
narrow to contain prices.
Figure 1: Nike
_1year price chart
Interpretation:
NIKE currently falls within the Bollinger Band. This indicates that the stock is neither
positively nor negatively extended. Since the Bollinger Band widths are not very wide,
this indicates that there is not much volatility in the price of the stock. However, since
NIKE falls within the Bollinger Band, this indicates a time to HOLD the stock since there
is great potential for price growth.
Figure 2: Nike compared to the Market
1year price chart
_
Interpretation:
NIKE and the market seem to have a close historical trend. Recent performance indicates
that the market is heading upwards. This indicates that it is opportune time to BUY
NIKE. However, I will still maintain a HOLD on the NIKE stock.
Figure 3: Nike compared to Puma
_1year price chart
Interpretation:
Figure 3 shows that NIKE’s stock is not as volatile as PUMA’s stock. Due to the fact that
NIKE’s stock presently falls within the Bollinger Band, this indicates a time to HOLD
the stock since there is great potential for price growth.
3- Simple Moving Average:
A Moving Average is an indicator that shows the average value of a security's price over
a period of time. When calculating a moving average, a mathematical analysis of the
security's average value over a predetermined time period is made. As the security's price
changes, its average price moves up or down.
There are five popular types of moving averages: simple (also referred to as arithmetic),
exponential, triangular, variable, and weighted. Moving averages can be calculated on
any data series including a security's open, high, low, close, volume, or another indicator.
A moving average of another moving average is also common.
The only significant difference between the various types of moving averages is the
weight assigned to the most recent data. Simple moving averages apply equal weight to
the prices. Exponential and weighted averages apply more weight to recent prices.
Triangular averages apply more weight to prices in the middle of the time period. And
variable moving averages change the weighting based on the volatility of prices.
The most popular method of interpreting a moving average is to compare the relationship
between a moving average of the security's price with the security's price itself. A buy
signal is generated when the security's price rises above its moving average and a sell
signal is generated when the security's price falls below its moving average.
Figure 1: Nike
_1year price chart
Interpretation:
Since the closing prices of NIKE in the last few days are slightly above the SMA line,
there is an indication to BUY at this time.
Figure 2: Nike compared to the Market
_1year price chart
Interpretation:
A BUY signal was triggered when the market average was heading upwards. Moreover,
NIKE’s stock has been hovering above the SMA line in the last few trading sessions.
Figure 3: Nike compared to Puma
_1year price chart
Interpretation:
It is an opportune time to BUY NIKE’s stock because its stock is trading above the SMA
line, and its stock has not appreciated much compared to PUMA’s stock.
4-Volume Analysis:
The Cumulative Volume Index ("CVI") is a market momentum indicator that shows
whether money is flowing into or out of the stock market. It is calculated by subtracting
the volume of declining stocks from the volume of advancing stocks, and then adding this
value to a running total.
The CVI and OBV (On Balance Volume) are quite similar. Many computer programs and
investors incorrectly call the OBV the CVI. OBV, like the CVI, was designed to show if
volume is flowing into or out of the market. But, because up-volume and down-volume
are not available for individual stocks, OBV assumes that all volume is up-volume when
the stock closes higher and that all volume is down-volume when the stock closes lower.
The CVI does not have to make this large assumption, because it can use the actual upand down-volume for the New York Stock Exchange.
One useful method of interpreting the CVI is to look at its overall trend. The CVI shows
whether there has been more up-volume or down-volume and how long the current
volume trend has been in place. Also, look for divergences that develop between the CVI
and a market index. For example, is the market index making a new high while the CVI
fails to reach new highs? If so, it is probable that the market will correct to confirm the
underlying story told by the CVI.
Figure 1: NIKE
_1year price chart
Interpretation:
There was heavy trading on NIKE’s stock in the months of July and September. The
volume has since decreased substantially. Place a HOLD on NIKE.
Figure 2: NIKE compared to the market
_1year price chart
Interpretation:
In figure 2, NIKE stock seems to be overbought in relation to the market index. As a
contrarian, it is better to HOLD on to NIKE stock since it is a bit overvalued at this point.
The volume index of NIKE is not rising in relation to the Market index. This indicates
that the number of investors of the stock is decreasing. This verifies that it is not the best
time to buy the stock because the demand for the stock is not strong. Place a HOLD on
the stock.
Figure 3: NIKE compared to PUMA
_1year price chart
Interpretation:
The price movement of NIKE’s stock in the last six months suggests that they have
underperformed in comparison to PUMA’s stock. There seems to be a strong resistance
in the upward momentum of NIKE’s stock. NIKE’s volume has been quite inconsistent in
the last 6 months. There was a huge spike in volume at the end of June and in the middle
of September. Unless there is a substantial increase in volume, I would place a HOLD on
NIKE.
Conclusion of the Technical Analysis:
Out of the four technical indicators, 3 have indicated a HOLD on NIKE and 1 has
indicated a BUY on NIKE. Final technical analysis: Place a HOLD on NIKE.
Leading Economic Indicator Analysis
Gross Domestic Product (% change)
8
6
2002
4
2003
2
0
1Q
2Q
3Q
4Q
Interpretation
The US economy seems to be recovering from its slowdown. The 3rd Quarter GDP
expanded at a 7.2% rate.
Earnings Growth Rate
30
20
10
0
-10
-20
-30
2001
2002
2003
1Q
2Q
3Q
4Q
Interpretation
The forecast for the stock market in the next few months is good because companies have
reported 7 consecutive earnings growth quarters. In third quarter of this year, companies
on average reported a whopping earnings growth rate of 21.8%.
Job Growth (in thousands)
200
100
0
-100
J F M A M J J A S O N D
-200
-300
-400
Job
Growth,
2001
Job
Growth,
2002
Job
Growth,
2003
-500
Interpretation
Job growth in 2003 is very poor. However, there is an indication that the job market is
slowly improving. Job growth is extremely important for the economy and subsequently
the stock market because two thirds of the United States GDP comprised of consumers
expenditure.
Consumer Confidence
Consumer
Confidence,
2001
140
120
100
80
60
40
20
0
Consumer
Confidence,
2002
J F M A M J J A S O N D
Consumer
Confidence,
2003
Interpretation
Consumer confidence is important to the US economy because it accounts for about 66%
of its economic activity. Consumer confidence in 2003 is still weak. Based on the graph
above, consumer confidence will likely remain weak unless job growth improves
significantly.
2
1.5
1
PPI, 2002 (%
change)
0.5
0
-0.5
J F M A M J J A S O N D
PPI, 2003 (%
change)
-1
-1.5
-2
Interpretation
The PPI for 2001 and 2003 has been very low. Based on the graph above, the PPI is
likely to be in the range of 0 and 1 in the near future.
0.8
0.6
0.4
CPI, 2002 (%
change)
0.2
CPI, 2003 (%
change)
0
-0.2
J F M A M J J A S O N D
-0.4
Interpretation
The CPI for 2002 and 2003 has been very low. It is projected that the CPI will remain
low for the next 6 months. The Federal Reserve will not raise the interest rate if the level
of inflation is low. A higher interest rate will have a negative effect on the stock market.
Conclusion of economic indicator analysis:
Based on the six graphs above, the US economy has showed signs of growth and the
stock market might experience a mild rally due to these factors. Companies are beginning
to report positive earnings, and profits continue to improve. Another positive side is the
low inflation rate judging by the PPI and CPI numbers. The US economy is anticipated to
improve in the coming months.
Industry Analysis
10 Best Performing Industries
Industry
% Change One Month
Packaging & Containers
14.6%
Sporting Goods Stores
14.4%
Semiconductor Equipment & Materials
14.3%
Textile - Apparel Clothing
13.9%
Processing Systems & Products
13.9%
Diagnostic Substances
13.7%
Jewelry Stores
13.6%
Computer Based Systems
13.1%
Copper
12.5%
Air Services, Other
12.0%
10 Worst Performing Industries
Industry
% Change One Month
Drugs - Generic
-13.1%
Sporting Activities
-13.1%
Drug Delivery
-11.0%
General Entertainment
-7.8%
Long Distance Carriers
-6.7%
REIT - Hotel/Motel
-6.0%
Oil & Gas Equipment & Services
-5.4%
Healthcare Information Services
-5.3%
Grocery Stores
-4.9%
Appliances
-4.7%
Conclusion of industry analysis:
With the general improvement in the economy, the footwear industry is projected to
benefit from the upside in the economy because people will have more disposable income
to spend on non durable goods which is basically the footwear industry.
RECOMMENDATION:
Based on NIKE’s fundamental analysis, it is not a good to buy this stock aggressively.
Based on a long term investment strategy, it is better to ACCUMULATE NIKE stock
because of its potential for further growth and expansion, and also due to its cyclical
nature. The technical analysis indicates that it is a good time to HOLD the stock at this
point of time. I would recommend a “HOLD / ACCUMULATE” on NIKE stock.