Nike Remains Top Athletic Company
-Nike set a goal of $50 billion of total revenues for 2020.
-The company continues to innovate new footwear for its customers.
-Nike's financials look better and better each year.
Athletic footwear and apparel company Nike (NYSE:NKE) has been around since 1964. As the retail market has been facing tough competition against e-commerce business, how has Nike been holding up? Well, since the company's financials continuously look better each year and it's outperforming its competition, the popular company should be on investors' minds right now.
The chart shows sales forecast, taken from CNNMoney, for fiscal years 2017 and 2018. Analysts predict Nike will report total sales of $34.3 billion for fiscal-year 2017 and $36.5 billion for fiscal-year 2018. If analysts' predictions are close to actual results, Nike's plan to reach $50 billion in total sales by 2020 may fail. What exactly does this plan entail? Nike's goal is to double its business with half the impact. This means the company is focusing on reducing its carbon footprint and striving for renewable energy while doubling its revenue. As for some numbers, the athletic company plans on reaching $36 billion in sales for fiscal-year 2017, which is at the end of this month. Nike also plans on increasing its e-commerce revenue from $1 billion to $7 billion by 2020, which will help against the striving e-commerce businesses, and doubling revenue in women's apparel to $11 billion by 2020, as we can see in the chart below:
Nike's stock has been mostly on the rise since February 15th when its price was $56.64; the day before the company released almost 20 new sneakers. It hit its third highest price on March 20th at $56.68 right before it dipped down to $53.92 on March 22nd. What caused this $2.76 drop? Nike announced total revenue increased by 5% in the third quarter for fiscal-year 2017, which wasn't the expected forecast by analysts; however, the stock price closed at $56.36 just two days later. Currently, Nike's stock is at $54.65, which has been relatively the same since April 21st, with just a dollar difference here or there.
NKE data by YCharts
The athletic footwear company has been able to maintain the attention of its customers with new and innovative ideas. On December 1st, 2016, Nike released its HyperAdapt 1.0, its self-lacing shoes. Once the sneaker is put on, your heel hits a sensor which alerts the system in the sneaker to tighten the laces. Nike had a re-release on March 9th, 2017, as a drawing because of the difficulty customers had of getting their hands on this sneaker. Another innovate idea is a possible "smart" sneaker which could be in the works by the company. In December of 2015, Nike filed a patent for a sneaker with a built-in activity tracker; the patent was approved in January of 2016. This could up the game for Nike and its competitors, along with smart watch companies like Fitbit (NYSE:FIT), because of the possible convenience of simply slipping on the sneaker. Imagine a future HyperAdapt with a built-in activity tracker... The goal for 2020 could be easily feasible with these ideas.
Looking at the financials, the company looks better year after year. Total revenue has increased by $1.8 billion from fiscal-year 2015 to fiscal-year 2016. If Nike reaches its goal of $36 billion in total revenue for fiscal-year 2017, then the company will have doubled its growth to $3.6 billion. Profit margin increased from 10.7% for fiscal-year 2015 to 11.6% for fiscal-year 2016, which is a positive change for the company. This increase indicates Nike is retaining more dollars out of sales in earnings year after year. Competitors adidas (OTCQX:ADDYY) and Under Armour (NYSE:UAA) both have a profit margin of 5.3%, which doesn't stack up to Nike.
As for the balance sheet, there was a significant increase in Nike's current ratio, from 2.46 for fiscal-year 2015 to 2.8 for fiscal-year 2016. This drastic change was caused by a decrease of $9.74 million in current liabilities. The current ratio is important to know when determining whether or not to invest in a company because anything over 1 indicates the company is able to pay back their current liabilities. Another important ratio is the asset turnover ratio, which is 1.5 for fiscal-year 2016. While the average asset turnover ratio for the retail industry is 2.05, Nike's may not be the best ratio; however, competitors such as adidas and Under Armour are close behind with ratios of 1.31 and 1.41, respectively.
Overall, Nike appears to be a company worth investing in. As mentioned above, Nike has a bold goal for the year 2020, but has some smaller goals to help push the company in the right direction. The company's financials are also looking better each year with important ratios increasing while total revenue increases and current debt decreases. As long as Nike continues to innovate new designs for its footwear and apparel to grab the attention of its customers, its goal for 2020 will be reached and its value will increase. Nike is a buy and best to get a hold of before it reaches $60 per stock.