With shares of Nike (NYSE:NKE) trading at around $61.76, is NKE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
You have most likely read about Apple's (NASDAQ:AAPL) iWatch. Many questions and rumors have been swirling around about its release date, its price, and its features. In regards to the latter, there have been many reports that this device will be fitness-friendly. The iWatch might be capable of monitoring your vitals and indicating whether or not you have gotten enough exercise for the day. In a world where health and fitness consciousness is increasing daily, these features have a lot of potential when it comes to popularity. So, you might be wondering, "What does this have to do with Nike?"
Two important points needs to be made:
One, if the iWatch takes off as many expect, and if the health and fitness-related features are big parts of the device's popularity, then more people will join the fitness craze. Can you see where this is going? If not, Nike rules the global sports apparel market. If more people are into fitness thanks to the iWatch, then more people will want fitness apparel. This, in turn, would be a big plus for Nike.
Two, Apple CEO Tim Cook is on the Nike board of directors. A possibility exists that there will be some form of partnership between Apple and Nike with the iWatch. Perhaps it will relate to an app, but this is simply speculation.
Looking at Nike on an individual basis, it's a strong cash flow generator that doesn't require much leverage. Innovation is constant, management is strong, and rising incomes in emerging markets mean increased international growth potential. That said, Europe has been weak, and China has been inconsistent.
On a fundamental basis, Nike is trading at 20 times forward earnings and sports a profit margin of 9.22 percent. Under Armour (NYSE:UA) has been a thorn in Nike's side for a long time. It has outperformed Nike by a wide margin over a three-year time frame. And this column has been bullish on Under Armour since December. While the long-term outlook for Under Armour is still good, the stock is beginning to get expensive. Its trading at 32 times forward earnings. For comparative purposes, it has a profit margin of 6.34 percent (not as high as Nike). Nike also has an ROE of 21.89 percent whereas Under Armour has an ROE of 16.07 percent. Furthermore, Nike currently yields 1.40 percent whereas Under Armour doesn't offer any yield. And perhaps most important of all, Under Armour doesn't have a relationship with Apple.
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Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Nike has been a consistent performer for decades. However, the last month has been subpar.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| NKE | -4.15% | 20.56% | 22.69% | 78.41% |
| UA | -0.07% | 22.38% | 17.69% | 245.9% |
| LULU | -15.30% | -11.61% | 8.82% | 222.7% |
At $61.76, Nike is trading below its 50-day SMA, but still above its 200-day SMA.
| 50-Day SMA | 63.43 |
| 200-Day SMA | 56.63 |
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for Nike is stronger than the industry average of 0.20.
| Debt-To-Equity | Cash | Long-Term Debt | |
| NKE | 0.03 | 4.04B | 321.00M |
| UA | 0.07 | 255.72M | 60.44M |
| LULU | 0.00 | 588.42M | 0.00 |
E = Earnings Have Been Strong
Earnings and revenue have consistently improved since 2010.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 19,176 | 19,014 | 20,862 | 24,128 |
| Diluted EPS ($) | 1.51 | 1.93 | 2.19 | 2.37 |
| Quarter | May. 31, 2012 | Aug. 31, 2012 | Nov. 30, 2012 | Feb. 28, 2013 |
| Revenue ($) in millions | 6,470 | 6,669 | 5,955 | 6,187 |
| Diluted EPS ($) | 0.58 | 0.62 | 0.42 | 0.95 |
Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Conclusion
Many analysts are stating that Nike is too expensive at the moment. It might be expensive, but if you're looking for a winning long-term investment, then Nike is never too expensive. Nike always finds a way to grow. Current potential catalysts for growth include emerging markets, increasing interest in female sports apparel, and the iWatch impact.
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