Stock of the Week: NIKE (NKE)

Dec 21, 2014 -

An Overview Summary of NIKE (NKE)

NIKE, inc. is a household brand name athletic footwear, apparel, equipment, and accessories company. NIKE focuses on eight key categories including Running, Basketball, Soccer, Men's Training, Women's Training, Action Sports, Sportswear and Golf. 


What you may not already know is that NIKE also owns Hurley, Converse, and of course Brand Jordan. In late 2012, NIKE sold off their stake in Cole Haan to a private equity firm in Apax Partners for $570 million. Sales of Cole Haan only represented 2% of NIKE's overall revenue. In early 2013, NIKE also announced the sale of the Umbro brand to Iconix Brand Group for $225 million.

Highlight Fundamentals

As a consumer products company, NIKE's business is subject to changing sports and fashion trends. Shifts in sports popularity affects where revenue comes from. Generally speaking, in the past year NIKE has experienced higher sales in Running, Basketball, and Soccer. While NIKE designs and distributes athletic footwear and such, nearly all of its manufacturing is done overseas at independent contractors mostly in Vietnam, China, and Indonesia. 

NIKE's competitive advantage comes from focusing on product quality, performance and reliability, new product innovation, and consumer price/value. Furthermore, as the largest seller of athletic footwear, apparel, and equipment in the world, they are extremely focused on consumer connection and influential athletes. It is not unusual to see a Kobe Bryant or Lebron James in a NIKE ad campaign. 


Since 2010, NIKE's revenues have increased every year from $18.3B to $27.8B in 2014. This is over a 50% increase in four years. Much of NIKE's revenue is derived from its wholesale business. Meaning they will sell directly to wholesale customers, who will then sell to retailers alike. In fiscal year 2014, this accounted for nearly 76% of total revenues, with sales direct to customers coming in at 20%. The remaining 4% is revenues from licensing, which could mean NIKE allowed someone to use their trademarks or other intellectual property rights and in return paid royalty revenues to NIKE. 

Net income for the past three years from 2012 to 2014 has been around $2.2B to $2.7B. Equally impressive is that its gross margin has held at a 43.5% to 46.4% range. As of Q3 2014, it holds $2.5B in cash and short-term investments, which more than covers its long-term debt of $1.2B. It is also worth noting that recently the company spent $2.6B on repurchasing common stock. 


The majority of NIKE's sales has come from North America where Basketball, Sportswear, and Running categories dominate. In other parts of the world, it is not surprising to see Soccer sales be greater than almost any other category. Such is the case in Europe.

Highlight Technicals

From a technical perspective, NIKE has done particularly well in the last three six months.

It just recently retested the 50 DMA a second time. Typically when this happens the 50 day moving average (DMA) is more than likely to break. The more times a moving average is tested, the more likely it is to fail. However, we will need a candlestick confirmation as to whether or not this is a true break of the 50 DMA.


Should the 50 DMA break, then you are looking at support at around $90. Furthermore a move back to around $90 also happens to be at the 61.8% Fibonacci retracement level. Evidently there is resistance at $100 both in the psychological sense and technical sense. 

The oscillators are showing that the stock just work off some overbought conditions. A confirmation that the Friday hammer is indeed a reversal signal would be good for the bulls. Otherwise there maybe more downward action before a true bounce from the downtrend beginning in early December.

Disclaimer: This article is written for informational purposes only and not intended for investment advice. For more similar articles visit www.stockkevin.com.
Disclosure: I do not have a position in NKE.
 
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