Nike Stock Forecast: Even in the stratified world of the Fortune 500, a few businesses stand above the rest for their world-famous brand recognition and the extent to which they dominate their industry. Companies such as McDonald’s, Apple, and Walmart are instantly recognizable and iconic, with names, logos, and products that have spread around the world.
The same is true for the athletic apparel company Nike [NYSE: NKE]. If you ask people in the street to name just a single sportswear brand, odds are that they’ll probably say Nike.
Nike’s iconic “swoosh” logo is one of the most well-known and most valuable brands in the world, and the company has made smart partnerships with hundreds of athletes, including the basketball superstar Michael Jordan.
Historically, Nike stock has performed extremely well, making shares of Nike perennially interesting for would-be investors. At this stage in 2019, however, is Nike stock a buy or is there trouble on the horizon for the company?
The Nike Business Model
Nike [NYSE: NKE] is the world’s largest manufacturer of athletic shoes, apparel, and equipment. Founded in 1964 as Blue Ribbon Sports, the company was rebranded as Nike in 1971 and is currently headquartered in Beaverton, Oregon.
Mark Parker has served as Nike’s CEO, president, and chairman since 2006, just the third CEO of the company since its inception. Nike employs an estimated 70,000 people around the world.
Nike’s most recognizable product is likely the Air Jordans, a brand of basketball shoes that was originally produced for the exclusive use of Michael Jordan in 1984.
The Jordan brand has gone through many evolutions throughout the years, and is currently endorsed by popular basketball players such as Zion Williamson, Carmelo Anthony, and Russell Westbrook.
Other famous athletes that have been associated with the Nike brand over the years include the golf player Tiger Woods, the tennis players Serena Williams and Maria Sharapova, and the gymnast Simone Biles.
In addition, Nike owns several well-known subsidiaries such as the shoe company Converse and the surf apparel manufacturer Hurley. With these properties under its belt, it’s no surprise that the Nike brand has been valued at $30 billion as of 2017 – the highest valuation for any sportswear company in the world.
Is Nike a Buy?
With all this in mind, it’s clear that Nike is a force to be reckoned with in the sportswear industry but should equity investors consider buying shares of Nike?
Let’s start with the good news.
Nike and other athletic apparel companies are enjoying the rising tide of the “athleisure” trend for the past several years, which has boosted revenues as consumers wear sports gear in settings beyond the gym.
What’s more, rather than rest on its laurels at the top of the industry, Nike [NYSE: NKE] has continued to innovate in order to maintain its dominant position.
Nike [NYSE: NKE] announced in August that it would launch a shoe subscription service for children between roughly 2 and 10 years old, who tend to outgrow their shoes rapidly as they age.
Nike has also made recent acquisitions such as Celect, an AI and data analytics firm that is expected to help improve the online shopping experience.
It’s no surprise, then that Nike continues to post strong financial figures. Analysts expect that the company’s revenue will increase by 8 percent in both 2019 and 2020, and roughly 14 percent over the next five years.
What are the Risks of Buying Nike?
One concern about buying Nike stock is the potential effects of a looming U.S.-China trade war and the predicted global economic slowdown. Nike is well-known for outsourcing much of its manufacturing to factories in Asia.
However, the good news is that the back-and-forth of U.S. and Chinese tariffs will likely impact Nike less than some other companies in the same space.
Nike has been moving much of its manufacturing from China to Vietnam: in 2017, just 19 percent of Nike shoes were made in China, compared with 32 percent in 2012.
Nike’s most recent quarterly earnings report was also a shaky one for the company. Earnings per share of 62 cents were below estimates of 66 cents, causing a slight dip in share prices.
Fortunately, however, this disappointing result was largely due to higher marketing costs, administrative expenses, and taxes, which won’t have a long-term impact on the company’s financial health.
Nike Stock Forecast Summary
Nike’s dominance of the sportswear industry is thanks to the company’s ability to make smart partnerships with the right athletes while continuing to produce quality apparel.
Yet despite the strength of the company as a whole, there are a few signs that investors should be wary before purchasing Nike stock. In particular, the company’s price to earnings ratio currently hovers around 33, which seems high for valuation-focused investors.
While Nike [NYSE: NKE] will likely continue being an excellent stock to buy and hold for the long term, there are other companies in the same space that offer more for your money. It’s certainly not a bad idea to purchase Nike stock but it might not be the smartest use of your investment either.