Market Capitalization: $123.43 Billion
Shares Outstanding: 1.49 Billion
Sector: Consumer Discretionary
Industry: Footwear & Accessories
Analysis as of: October 21, 2024

1. Company Overview

NIKE, Inc. (NYSE: NKE) is a global leader in the design, development, marketing, and sales of athletic footwear, apparel, equipment, and accessories. Founded in 1964 and headquartered in Beaverton, Oregon, NIKE has established itself as one of the most recognized and valuable brands worldwide.

Key Brands and Products:

·       NIKE Brand: Athletic and casual footwear, apparel, and accessories.

·       Jordan Brand: Products inspired by basketball legend Michael Jordan.

·       Converse: Footwear and apparel under the Converse, Chuck Taylor, All Star, One Star, and other trademarks.

·       Equipment and Accessories: Sport balls, bags, socks, eyewear, digital devices, protective equipment, and more.

Distribution Channels:

·       Wholesale Customers: Footwear stores, sporting goods stores, department stores, and specialty retailers.

·       Direct-to-Consumer (DTC): NIKE-owned retail stores and digital platforms.

·       Digital Platforms: Fitness and activity apps, online content, and services.

Strategic Highlights:

·       Digital Transformation: Emphasis on growing digital sales through NIKE Direct and SNKRS apps.

·       Innovation: Continuous investment in product innovation, sustainability, and technology.

·       Global Expansion: Focus on emerging markets and strengthening presence in key regions like China and Europe.

2. Financial Performance

a. Revenue and Growth

·       Trailing Twelve Months (TTM) Revenue (as of August 31, 2024): $50.01 Billion

·       Year-over-Year (YoY) Revenue Growth (TTM): -2.83%

Revenue Trend (in Millions USD):

Analysis:

·       Revenue Decline: A slight decline in TTM revenue suggests challenges in maintaining growth momentum.

·       Pandemic Recovery: After strong recovery post-2020, growth has slowed, possibly due to market saturation and economic factors.

·       DTC Growth: Continued focus on direct-to-consumer sales may help offset declines in wholesale channels.

b. Profitability

·       Net Income (TTM): $5.30 Billion

·       Earnings Per Share (EPS, TTM): $3.49

·       Profit Margin: 10.60%

·       Return on Equity (ROE): 37.98%

·       Return on Assets (ROA): 10.65%

Analysis:

·       Stable Profitability: Net income increased by 4.93% YoY, indicating stable profitability despite revenue decline.

·       Strong ROE: High ROE reflects effective use of shareholder equity to generate profits.

·       EPS Growth: EPS increased by 7.91%, demonstrating improved earnings per share due to share repurchases and earnings growth.

c. Gross Margin and Operating Margin

·       Gross Margin (TTM): 44.97%

·       Operating Margin (TTM): 12.71%

·       EBITDA Margin (TTM): 14.40%

Analysis:

·       Healthy Margins: Gross margin remains strong, indicating effective cost management and pricing strategies.

·       Operating Efficiency: Operating margin improved compared to prior fiscal years, suggesting better control over operating expenses.

d. Cash Flow

·       Operating Cash Flow (TTM): $7.89 Billion

·       Capital Expenditures (CapEx, TTM): – $679 Million

·       Free Cash Flow (FCF, TTM): $7.21 Billion

·       Free Cash Flow Margin: 14.42%

·       Free Cash Flow Per Share: $4.84

Analysis:

·       Strong Cash Generation: High free cash flow provides flexibility for dividends, share buybacks, and investments.

·       CapEx Management: Relatively low capital expenditures indicate efficient capital allocation.

·       Cash Flow Growth: Operating cash flow grew by 45.61% YoY, highlighting improved cash management.

3. Balance Sheet

·       Total Assets (as of August 31, 2024): $37.87 Billion

·       Total Liabilities: $23.92 Billion

·       Shareholders’ Equity: $13.94 Billion

·       Total Debt: $12.13 Billion

·       Cash & Equivalents: $10.29 Billion

·       Net Cash Position: – $1.83 Billion

·       Net Cash Per Share: – $1.23

·       Debt-to-Equity Ratio: 0.87

·       Current Ratio: 2.36

·       Quick Ratio: 1.42

·       Working Capital: $14.41 Billion

Analysis:

·       Liquidity: Strong current and quick ratios indicate the company can comfortably meet short-term obligations.

·       Leverage: A debt-to-equity ratio of 0.87 shows moderate leverage; manageable given strong cash flows.

·       Net Cash Position: Slight net debt position due to debt exceeding cash; however, this is not alarming given the company’s financial strength.

·       Inventory Levels: Inventory turnover ratio of 3.25 suggests efficient inventory management.

4. Valuation

·       Current Stock Price (as of October 18, 2024): $82.92

·       Price-to-Earnings (PE) Ratio (TTM): 23.74

·       Forward PE Ratio: 28.97

·       Price-to-Book (PB) Ratio: 8.87

·       Price-to-Sales (PS) Ratio: 2.50

·       Price-to-Free Cash Flow (P/FCF) Ratio: 17.12

·       Enterprise Value (EV): $125.26 Billion

·       EV/EBITDA Ratio: 17.39

·       EV/EBIT Ratio: 19.70

·       PEG Ratio: 3.88

Analysis:

·       Moderate Valuation Multiples: PE and PB ratios are relatively high compared to industry averages, indicating the stock may be trading at a premium.

·       Growth Expectations: A PEG ratio of 3.88 suggests the stock may be overvalued relative to its earnings growth rate.

·       Analyst Consensus: Average price target is $98.03, implying potential upside of 18.22%.

5. Market Performance

·       52-Week Range: $70.75 – $123.39

·       52-Week Price Change: -19.50%

·       Beta: 1.02

Analysis:

·       Stock Decline: The stock has declined over the past year, underperforming the broader market.

·       Market Volatility: A beta of 1.02 indicates the stock’s price movement is in line with the market.

·       Investor Sentiment: Negative price performance may reflect concerns over slowing growth and competitive pressures.

6. Financial Health and Risks

a. Liquidity

·       Current Ratio: 2.36

·       Quick Ratio: 1.42

Analysis:

·       Strong Liquidity: High ratios indicate ample liquidity to cover short-term liabilities.

b. Leverage

·       Total Debt: $12.13 Billion

·       Debt-to-Equity Ratio: 0.87

·       Interest Coverage Ratio: 22.63

Analysis:

·       Manageable Debt: Moderate leverage with strong interest coverage suggests low financial risk.

·       Debt Management: Consistent debt levels with effective repayment strategies.

c. Profitability and Cash Flow

·       Consistent Profitability: Stable profit margins and returns on equity and assets.

·       Strong Cash Flow: High free cash flow supports dividends, share repurchases, and investments.

d. Operational Risks

·       Competition: Intense competition from brands like Adidas, Under Armour, and emerging market entrants.

·       Supply Chain Disruptions: Potential risks from global supply chain challenges and geopolitical tensions.

·       Consumer Preferences: Changing fashion trends and consumer preferences may impact demand.

e. Market Risks

·       Economic Conditions: Economic downturns can reduce consumer spending on discretionary items like athletic apparel.

·       Currency Fluctuations: As a global company, currency exchange rates can impact financial results.

·       Regulatory Changes: Tariffs and trade policies may affect costs and pricing strategies.

7. Conclusion 

Pros:

·       Global Brand Recognition: Strong brand equity and customer loyalty.

·       Innovation Leadership: Continuous investment in product innovation and technology.

·       Digital Growth: Expansion of direct-to-consumer channels and digital platforms.

·       Financial Stability: Strong cash flows and liquidity position.

Cons:

·       Slowing Growth: Recent revenue decline and slowing growth rates.

·       High Valuation Multiples: Elevated PE and PEG ratios may limit upside potential.

·       Competitive Pressures: Intense competition may impact market share and margins.

·       Market Saturation: Mature markets may limit growth opportunities.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions..