Not only has Nike (NKE) been paying a dividend since 1987, but since going public 35 years ago, NKE stock is up 32,000%. Apple (AAPL), for comparison, is up around 22,000% in about the same time frame.
What’s 10,000% among friends?
For all the talk of massive gains in tech stocks, there are some companies in relatively mundane sectors – shoes, shirts, assorted athletic gear and accessories – that have growth trajectories most tech stocks would give their left arm to achieve.
And NKE is at the top of the heap.
Yes, there are upstarts like Under Armour (UA), Skechers (SKXX) or Lululemon (LULU) that grab a lot of attention. But let’s be clear, Nike commands a 50% market share of the U.S. athletic footwear market and more than 20% around the world. Sure, Nike’s U.S. running shoe segment has lost 0.2% in the past year, but Nike is expected to grow its global market share to nearly 30% by 2020.
These are impressive numbers. And no other sports company comes close to this kind of dominance on a global scale. UA, SKXX and LULU are eating the scraps in NKE’s wake.
The Care Behind Nike’s Success
Shoes remain the core of the Nike’s success. And as of the fourth quarter of 2015, footwear makes up about 58% of its revenue, with apparel coming in around 31%.
The only places NKE has yet to conquer are China and India. While it has a foothold, and grows market share every year, it hasn’t yet come to dominate these massive markets.
But its relatively light exposure in China has certainly helped it weather the recent stock market storm and the slowdown in the Chinese economy. After a sharp initial drop, NKE stock has recovered well.
There’s no doubt that there will be challenges to revenue as long as the dollar remains strong and the global economic growth remains lackluster at best. But there are some very promising structural developments that portend good things for NKE in the next year.
First, the Trans-Pacific Partnership trade pact will help Nike’s margins. The company produces 40% of its footwear and 25% of its apparel in Vietnam. Currently, U.S. tariffs on goods imported from Vietnam range from 5% to 37.5%. The TPP will allow Vietnam to export apparel to the U.S. at a tariff rate of zero. That all goes to the bottom line.
Second, NKE has inked a major sponsorship deal with all the athletic teams at the University of Michigan for the next decade. And after the continued success of the Michael Jordan and Kevin Durant shoe lines, has just signed rising NBA stars Karl-Anthony Towns and D’Angelo Russell to shoe deals.
The 2016 Olympics will also be a significant platform for NKE.
Third, lower oil prices mean cheaper production costs — translating to better margins — on many of its materials. The company’s continued innovation is also bearing fruit.
Its current Flyweave technique has taken the soccer cleat market by storm. Introduced in the 2014 World Cup, the shoes are all over the globe at this point. As testament to this, NKE took the top soccer cleat-maker spot from Adidas in the past year. And the material has much higher margins than the materials it replaces, so NKE is incorporating its Flyweave material across many of its other sports lines as well.
And even though founder and chairman Phil Knight is finally stepping away the from the business, he has left great people in charge to keep his legacy growing and innovating for decades to come.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
