Nike: Just Do It!
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares of Nike (NYSE: NKE) look like they are wearing a nice pair of running shoes lately; they are making new all-time highs in a market that does not feel so convinced about going for a run. Better yet, the company´s over performance is not just a recent fact, over the last five years it has been a much more convenient investment than the S&P 500, represented in the chart by the popular ETF S&P Depository Receipts (NYSEMKT: SPY).
The main reason for these outstanding returns may be the fact that based on memorable marketing campaigns, strong brand recognition and quality differentiation, the company has positioned itself as the clear leader in the sports footwear and apparel business. It has always been very strong in sports like running, basketball and golf, and since it acquired Umbro in 2008 it has taken big steps in soccer, a huge global market. Nike has been gaining market share from its biggest competitor there: Adidas (NASDAQOTH: ADDYY) over the last years.
Brand recognition is a crucial competitive advantage in this business and Nike is a really strong brand. The Wall Street Journal compares Nike with Apple (NASDAQ: AAPL) when it comes to marketing power and customer demand:
“Apple Inc. isn't the only company whose products are commanding a premium in a holiday season otherwise marked by steep discounts.
Nike Inc.'s Jordan line of sneakers is drawing iPhone-like lines of buyers despite iPhone-like prices.
The phenomenon underscores the strength of a brand that brings the company about $1 billion a year in sales. But it also reflects a strategic choice by Nike and its major retail outlets like Foot Locker Inc.: keep supplies of hot models limited and time releases for when target customers are in the best position to buy.”
This is a high quality business with solid fundamentals and long term growth prospects. Shares seem reasonably valued at a forward price to earnings of less than 17 times next year average earnings estimate. They tend to be volatile and quite sensitive to the economic environment, so you may want to wait for a pullback before taking a big position.
A nice alternative could be selling put options with low strike prices. If the stock continues rising you make some money, and if the price falls and the puts get executed you end up buying a great business at a conveniently low price. Buying Nike at low prices could be similar to acquiring a brand new pair of the latest Jordan model at the price of a second hand pair of shoes.
I own shares of Nike.