Analysis of Nike 2020

Company: Nike

Business: An American company that are selling and developing athletic footwear, apparel, equipment and accessories. They have several brands: Nike, Nike+, Hurley, Jordan Brand and Converse to mention a few.

Active: They are present world wide and they are known world wide by name and symbol.

P/E: 35

For a previous analysis please click on Analysis of Nike 2020.

The P/E of Nike is extremely high with 35 and so is the P/B with almost 16 which gives a clear no go from Graham. Earnings to sales are ok with 10% and the ROE is excellent with 44% but leveraged. The book to debt ratio is low with 0.6.

In the last five years they have had a yearly revenue growth rate of 5% which is good and this gives us a motivated P/E of 18 to 20 which means that the market is currently significantly overvaluing Nike.

They pay a tiny dividend of 1% which happily only correspond to 35% of their earnings so they should be able to at least keep it up.

Future: Nike is a strong brand even though they are dancing around with Adidas, Under Armour and c/o on which brand is the coolest and most fashionable. My nephews who are what I would call fashionistas age 8-12 went from Adidas 2 to 3 years ago to Nike. When I sold my Adidas I considered them to be strongly over valued PE > 30 and that was at around 165 EUR per share since then Adidas have been up above 300 EUR per share. Timing was in that case not ideal. Sportswear will continue to be sold and Nike is a well known brand. I should have had both in my portfolio by the look of things.

Conclusion: Graham says no and at this level I am not interested in increasing my holding. I will however not sell what I currently have either.