Is This Company A Touchdown or an Interception?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the new year begins, I would like to pinpoint a global trailblazer in the athletic footwear and apparel industries, Nike (NYSE: NKE).

<img src="http://stockcharts.com/c-sc/sc?s=NKE&p=D&yr=1&mn=0&dy=0&i=t52993889232&r=1356805988909" />
 

Strengths:

  • Solid Revenue Growth: In 2007, Nike reported revenue of $16.33 billion; in 2012, the company announced revenue of $24.13 billion, representing year over year annual growth of 8.12%, a trend which is highly anticipated to sustain into the future, with projections placing 2015 revenue at $29.20 billon; due mostly from a combination of an increase in Nike's market share of the footwear and apparel markets
    <img src="/media/images/user_13174/1_31_large.png" />
     
  • Dividend: Currently, Nike pays out quarterly dividends of $0.21, which annualized puts the dividend as yielding 1.65%
  • Institutional Vote of Confidence: 66% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Reasonable Valuation: At the moment, the company carries a price to earnings ratio of 21.34, a price to book ratio of 4.50, and a price to sales ratio of 1.90, all of which point to a company trading with a fairly reasonable valuation

<img src="/media/images/user_13174/1_32_large.png" />
 

  • Position in Industry: Currently, Nike possesses a 19.70% market share of the global athletic footwear industry, and a 4.9% market share of the global athletic apparel industry, strong positions which are set to expand in the coming years

<img src="/media/images/user_13174/2_32_large.png" />
 
<img src="/media/images/user_13174/3_29_large.png" />

  • Brand Value & Loyalty: In the Forbes 40, Nike is the most powerful and valuable business in sports, being valued at $15.9 billion, and Nike’s brand value and incredible brand loyalty is a major strength of the company
  • Cash & Equivalents: Nike currently possesses about $2.16 billion of cash and cash equivalents on their balance sheets, a major upside to the business

<img src="/media/images/user_13174/4_20_large.png" />
 

Weaknesses:

  • Tight Margins: At the moment, Nike possesses a net profit margin of 9.22%, which is below the ideal double digit range, and leaves little room for unexpected expenditures
  • Debt: Nike currently only holds $170 million of debt on their balance sheets, a very small weakness in the company

<img src="/media/images/user_13174/5_17_large.png" />
 

  • Brands Compete Against Each Other: Nike possesses a strong portfolio of brands, including Nike, Converse, Cole Haan, Hurley, Jordan, Nike Golf, and Umbro, and these brands compete with each other, which is a major weaknesses to the business
  • Operating Expenses: As a company expands, the costs related to operating that business grow, however over the past years operating expenses have outgrown revenues, a troubling sign

<img src="/media/images/user_13174/6_12_large.png" />
 

Opportunities:

  • Adding Sponsors: Nike prides itself on the large portfolio of premier sponsors it possesses, and further sponsors that are the best at what they do could fuel excitement for the brand  
  • Dividend Growth: Since implementing their dividend program in 1984, Nike has consistently raised their dividend payouts, this trend is widely anticipated to sustain into the future

<img src="/media/images/user_13174/7_7_large.png" />
 

  • Growth in Sports Footwear Market: 53.05% of Nike business is concentrated in its Nike footwear segment, which is in an industry which has grown from $60 billion in 2006 to $68.1 billion in 2011, and if Nike is able to maintain its current market share, they should benefit from the growth expected in the industry



<img src="/media/images/user_13174/1_33_large.png" />
 

  • Growth in Sports Apparel Market: 26.65% of Nike business is concentrated in its Nike apparel segment, which is in an industry which has grown from $124.7 billion in 2007 to $132.2 billion in 2011, and if Nike is able to maintain its current market share, they should benefit from the growth expected in the industry

 

<img src="/media/images/user_13174/8_3_large.png" />

  • Innovation in Products: Nike has a long history of innovating its products to create customer excitement, and further innovations are highly expected, and should fuel growth

Threats:

  • Competition: Both the footwear and apparel industries are very competitive, and this battling to offer the best product for the least amount of money can lead to margin compression
  • Fiscal Cliff: If the United States was to fall off of the fiscal cliff, taxes would be raised on nearly all Americans, leaving them with less money to spend, hurting Nike’s business
  • Rising Input Prices: Nike utilizes several unique materials to make its products, and if any of their input prices were to rise, the company would be faced with the difficult decision of passing the extra costs onto their customers or swallowing the pain in their margins

Competition:

Major publically traded competitors of Nike include Skechers USA (NYSE: SKX), Crocs (NASDAQ: CROX), Deckers Outdoor (NASDAQ: DECK), and Steven Madden (NASDAQ: SHOO). All of these companies offer products that rival Nike’s offering, however none pose incredible threats to the company. Skechers is valued at $916.38 million, pays out no dividend, and carries a negative price to earnings ratio. Crocs is valued at $1.26 billion, pays out no dividend, and carries a price to earnings ratio of 8.99. Deckers is valued at $1.34 billion, pays out no dividend, and carries a price to earnings ratio of 9.41. Steven Madden is valued at $1.89 billion, pays out no dividend, and carries a price to earnings ratio of 16.39.

The Foolish Bottom Line:

Financially, Nike is as solid as a rock. The company possesses solid revenue growth, a growing dividend, a sizeable pile of cash and very little debt. Additionally, the company’s future is filled with opportunity and potential growth. All in all, Nike is an incredible growth investment and a great addition to any long-term portfolio.     


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Crocs, Nike, and SKECHERS USA. Motley Fool newsletter services recommend Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus