In an up-and-down year for the market, Nike (NKE) stock has been immune to all the volatility.
NKE stock is up 27% year-to-date, 54% in the last two years and 193% in the last five years. Uncertain stock market conditions, declining growth in China, a modest U.S. retail environment — none of it has slowed NKE … at least not since little-known Mark Parker took the helm in 2006.
Correction: Parker was little known. Being named Fortune’s “Businessperson of the Year” should change that.
Phil Knight’s right-hand man until 2006, when the Nike founder handed over majority ownership to him, Parker has been a godsend for Nike’s sales and NKE stock.
Sales have more than doubled — from $15 billion to $31 billion — in the nine years since Parker assumed the CEO role. Profits have skyrocketed too, from just over $1 billion in 2006 to $2.5 billion in Nike’s 2015 fiscal year ended in May.
As a result, Nike stock has soared, gaining a whopping 505% during Parker’s low-key reign, far outpacing the mere 69% run-up in the S&P 500 over that same span.
Parker: Growth Should Accelerate
Can a company as big as Nike ($104.5 billion market cap) continue to grow at such a breakneck pace? Parker thinks so — and after nine years of world-beating results, it would be foolish to doubt him.
In fact, Parker actually expects Nike’s sales growth to accelerate over the next five years.
Last month, Parker vowed to boost Nike’s revenue from $31 billion to $50 billion by 2020. If true, that would mean Nike sales would ramp up to 10% annual growth from their current 8.5% growth.
It’s also a reason why NKE, trading at just under 25 times next year’s estimates, is still a relative bargain — especially when you consider that earnings are growing more than twice as fast as sales. In 2015, NKE posted 24.5% EPS growth, following that up with 22% EPS growth in the first quarter of 2016.
For full-year 2016, Nike’s EPS growth is expected to slow to 16%, followed by an estimated 14% growth the following year. Even so, Nike stock is still something of a pittance at 25 times EPS estimates.
Nike Stock Still a Buy
The technicals on NKE stock also look good: NKE has traded above its 50-day moving average since mid-September, and is actually trading 6% below its mid-October peak of $133.
With the holiday shopping season about to commence, and Nike set to report second-quarter earnings next month (which is likely to include another increase in the company’s burgeoning dividend), this looks like a pretty good entry point into Nike stock.
And don’t worry about all the holiday competition, as Nike owns 62% of the U.S. athletic shoe market; its closest competitor is Skechers (SKX), with a mere 5% market share. While Skechers is growing faster than NKE right now (30% earnings growth, 27% revenue growth), the stock has been literally sliced in half since early August, plummeting from $53 to $26.50.
Nike stock is clearly the better buy.
Despite its torrid pace of late, Nike stock isn’t headed for a fall anytime soon. That’s why I recommend buying NKE even after a 31% YTD run-up.
Few blue-chip stocks with brands as universally recognized as Nike’s patented Swoosh still grow like NKE does. And Mark Parker is largely responsible for that growth … even Knight says so.
With Parker forecasting even greater growth over the next five years, it’s worth listening to him.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
