Global athletic footwear, apparel, and equipment manufacturer NIKE, Inc. (NKE Free NIKE Stock Report) has enjoyed a great run since its early days as the brainchild of University of Oregon track athlete Philip Knight and his then coach Bill Bowerman. These entrepreneurial mavericks started the company as a distributor for Japanese footwear maker Onitsuka Tiger (now ASICS) under the name Blue Ribbon Sports back in 1964. The men soon outgrew the Onitsuka deal and dropped the Blue Ribbon moniker in 1971 when they launched their own footwear design and development outfit, which they called Nike. The unique name was soon made famous by its signature “swoosh” that has helped the company’s brand become one of the most valuable in the world among sports businesses.

Using the VL Page_Top LabelA glance at the top of the Value Line page, in the Top Label where the Hi/Lo price chart lives, reveals that the stock has risen some 625% (split adjusted) over the past decade. Furthermore, the Graph below illustrates that the shares exhibited the most notable momentum from 2010 to present day, it took off in the years following the 2008-2009 recession, accelerating nearly 350% (split adjusted) to record highs over the aforementioned span. 

The strong price gains over the aforementioned period have probably been propelled by the company’s consistently solid earnings growth during the span. Scanning across the page, the Annual Rates box displays Nike’s financial performance over the last five and 10-year periods. All of these growth rates are in the double digits, with the most notable being dividends and earnings, 17.5% and 13.5%, respectively. Those are quite compelling figures. Furthermore, 12.5% cash flow and 10.5% sales growth rates are nothing to scoff at, either.

Moreover, those on the “Street” that are bullish on the equity contend that, regardless of earnings comparisons, there are a number of factors that support a bright outlook for the company. The primary one being the company’s record of innovation. A standout example of this is the 2015 release of Nike’s homage to Michael J. Fox of Back to the Future: the self-lacing shoes (a mere five years after initially filing for a self-lacing shoes patent). Customers generally reward innovative companies with a higher margin. Indeed, Nike remains on the cutting edge with regard to digital transformation of the physical world. The company has broken out of apparel with meaningful forays into tech, data, and services, as management has leveraged a history of expanding partnerships with other businesses in various industries, worldwide. Accordingly, the company has demonstrated a mindset and nimbleness to grow beyond its own core competency. Too, Nike is well positioned to capitalize on the rapidly expanding global “middle class” in such regions as China, India, Brazil, and several other East Asian and African countries. Furthermore, as the importance of physical activity is gaining popularity again in the western world, Nike is likely to be one of the primary benefactors of this behavioral change in society.

Using the VL Page_Historical ArrayTaking the aforementioned performance drivers into account and shifting our attention to the historical financial data in the Statistical Array, a look at the company’s operating margins shows that this ratio has been fairly consistent for several years. This suggests that management has a highly efficient and disciplined operating model in place. Not to say that rising margins wouldn’t be more appealing, but the sustainability of profit advances is, arguably, a more admirable trait. Moreover, it stands to reason that these steady margins are maintained by Nike’s economies of scale and healthy allocation for marketing expenditures that directly support revenue growth. This is substantiated by the reality that the company’s iconic brand is very dominant in its respective markets, as the vast majority of consumers are willing to pay a premium for footwear and apparel that bear the famed Nike swoosh.

Beyond the company’s noteworthy historical results, the more pertinent consideration is NKE’s potential over the next several years. The 3- to 5-year Projections box indicates that these shares are trading near the low end of analyst Craig Sirois’ Target Price Range, which suggests that Mr. Sirois does not expect gangbuster gains over the long run. The P/E Ratio at the top of the page offers some credence to his outlook, as 27.6 is a historically lofty multiple for this equity, at least over the past decade. Moreover, it is well above the projected average annual ratio out to 2019-2021. These data indicate that much of the stout sales, earnings, cash-flow, and dividend growth we envision over the next 3 to 5 years is already baked into the current quotation. This notion is further supported by the Timeliness rank of 4 (Below Average), which suggests that the equity could lag the broader market averages in the year ahead. Using the VL Page_Timeliness Ranks Box

Nonetheless, Nike’s outstanding financial condition is also evident in the Ranks box, where it boasts a superlative Safety rank of 1 (Highest). This is further supported by its outstanding scores in the Financial Ratings box, which includes a top-notch Financial Strength rating (A++) and superior Price Growth Persistence and Earnings Predictability marks (100 and 95, out of 100, respectively). Furthermore, the company’s immaterial debt load and flush cash coffers offer considerable financial flexibility for investing in growth opportunities, brand acquisitions, research and development, and enhancing shareholder value by augmenting its dividends and share buybacks. Our current projections could well prove conservative should Nike employ more aggressive growth strategies going forward. In any event, we believe NKE shares are a solid addition to any portfolio. Moreover, Mr. Sirois notes that, “Although the issue is untimely, it is becoming more attractive as a long-term investment on a risk-adjusted basis.” All told, we believe that investors should monitor this stock and try to get in on a price dip, as it is a compelling holding for any well-balanced portfolio.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.