Nike (NKE) Stock Analysis

What’s up investors, another stock analysis this time we're taking a look at Nike ticker symbol NKE. I do own shares of Nike, but it should not impact how I analyze this company.

Like I said, they just reported earnings today. So it's actually really exciting. So I'll go through those we've got the three months ended. It was our Q4 technically. So they've got their 12-month ended, and Nike's a really interesting company because we've got this whole COVID-19 thing happening.

Nike had all their stores closed, they had sports basically around the world not being played. So Nike, out of all companies, should be very heavily impacted by the virus. You see revenues down 38%. So after Nike posted these earnings, only down about 3%, which really takes us back to a price that we saw like last week or so.

So not heavy action in Nike, we'll see if the earnings that we go through here really translate to the stock trending down. But we see this stocks been in a nice uptrend for the last year. We have this COVID-19 low. It hung on this just for a couple days. And then boom, right back up to $80 a share and then BAM, we're back up to kind of near all-time high.

So we're out in a 52-week range, we're close to it at 105, even if you factor in this after-hours action. We're still close to a 52-week high in Nike.

Now, for PE of 43, and I will say that's a little rich for the most part. But Nike tends to trade in if you want to go and look at a historical PE average, usually above 20. So while 40 is kind of high, Nike typically sells in a higher PE than most companies, especially ones in the clothing and fashion business.

Now, the dividend yield is low at the current share price, but if you were to buy in shares, maybe a few months ago, then this yield would be higher. But you're about a 1% yield, very little short interest, particularly because of the massive size of Nike in relation to their competitors and also the dividend kind of keeps the shorts away as well.

Market cap at 155 billion, we'll keep that in mind as we roll through the financials. Now, these financials are exciting because like I said, even if you're not interested in Nike, there's a lot of things going on here with the virus that impacts Nike. There's just a lot of thing that Nike is involved in that you can draw parallels to other companies.

Now, we see here three months ended this is total COVID-19 impact. This is almost complete shutdown for Nike. We see in the previous period last year, they did 10 billion dollars in revenue in the quarter. This quarter, 6 billion, that is a 38 percent decline, that is rapid. They have a very good reason, most of their stores were closed, especially in the US, and even around the world.

Now twelve months ended, we see here we slid in revenue not something you want to see when you're paying a forward PE of over 40. But again, let's give Nike credit for flat year-over-year. So you can add about four billion dollars to this if they were flat. And so they would have raised year-end or 12-month earnings, and so that would have been a positive.

Instead, we have this 4% decline, which is not too bad, if Nike is able to reopen the stores, turn things around really quickly, get things back up to speed shouldn't be a big deal.

Cost of sales, typical in a fashion company, not like software where the margins are huge, like Adobe and Microsoft, not in fashion. We see the gross profit margin really slipped down to 37% in the quarter. Last year is at forty five, and for a full year, there in that forty four range.

So not only did sales take a hit, but margins took a big hit. So that'll be interesting to see if Nike is able to drive these back up the next few quarters back into the mid 40s. That would be a positive sign for investors.

Now, they did be able to cut some of their marketing spend we see. They spent a billion dollars in a quarter last year. They trimmed that down to 823 million likely because you're not buying ads on TV and Facebook and Google ads. So they declined advertising by about 20 percent.

Operating overhead, this is all the other expenses, we got about 2.3 billion dollars. So we have our total expenses here at 3.1 and we only made 2.3 billion dollars. That leads to an 804 million dollar loss. Last year, they turned out 1.2 billion dollars, and I would say, that's typical for Nike.

Let's just slide down to net income. We made 4 billion dollars last year, this year, 2.5 billion. So it slid off considerably over 38%. Notice the decline month of our quarter over quarter, 180 percent decline.

Nike is their numbers are gonna go down. And if it happens to Nike, one of the world's leading brands, okay, you better believe, it's gonna affect Adidas, Ralph Lauren, VF Korff, any of these clothing companies, it's gonna be the same story.

So can Nike survive losing 800 million dollars to a billion dollars in a quarter? Absolutely, take a look at the cash and cash equivalents went up 87%. We know that's not from earnings, so we'll see where it came from. They had 4 billion last period in this period they have over 8 billion.

Now, that's not the most interesting thing. We know Nike can probably survive, they've got some cash they can afford to pay LeBron, Tiger and Jordan. Inventory, this is something you want to focus on. They had 5.6 billion in inventory, now they have 7.3 billion, because they weren't able to sell anything.

Nike has a ton of inventory and they should be able to sell this through their outlet stores, through off price places like Ross and TJ Maxx. The problem is margins.

So there's gonna be a lot of off price and on sale Nike stuff. So I think that's gonna keep a lid on margins a little bit.

Now finally, total assets you got 30 million, which got boosted quite a bit by this cash. Where did that come from? I think it came from this long-term debt. It went up 172 percent, they had 3.5 billion last period all the way up to 9.4 billion. So that's about where about four billion dollars worth of cash came from.

Don't really worry about that too much as long as Nike is able to start churning through some of this inventory. I think the thing you want to look for with Nike in three months, see where this inventory. Are they're able to chew through this 7 billion dollars in inventory? And can they take these margins up at the same time?

Now, this is really interesting too because like we said, these three months right are all COVID-19. But China actually was opening up a little bit and starting to get things rolling. So maybe as North America starts to come around in August, September and into the holiday season, maybe the North America market will start to mirror China.

Footwear in China was basically flat in a quarter, coming off of COVID-19 and China was really hit hard. They had a lot store closures, a lot of quarantines. China was just reopening and kind of getting things going in this quarter. North America was basically shutdown, and we see 41 percent decline in footwear, 56 in apparel and 60 percent in equipment.

If you normalize this, you give credit for Nike to have flat. I think investors are gonna give Nike a pass, where they had to close all their stores.

Because a lot of investors are gonna look at this China number her numbers were actually up year-over-year and that it's including a large percentage of the time or a quarter of the year, China was basically shut down. And so Nike was able to grow their revenues in China when the company was essentially shut down for several months.

So where would I buy Nike? If Nike slid back into that 70 to $80 range, that's where I'd like to get it. It could be that this trend continues, Nike just gets negative and the trend breaks here and the stock breaks down a little bit. I think it's possible that the stock gets back into the mid-80s.

If it gets back into the mid-80s, I like it there because I think, Nike is gonna be able to rebound here in North America. I think Nike can survive another even 12 months of COVID-19, especially if sports come back.

So am I buying up here at the 100 dollar level? If you've never bought Nike shares and you want some exposure to it, I'm not gonna tell you, no.

But if it pulls down to $80 range, there is a lot of demand for the shares at this $80 range. So Most stocks make these COVID-19 lows and then they snap back to a price where there's a lot of demand, and it's at that mid 80s level.

Conclusion:

So if you have a thousand dollars to put into Nike, I think you could go maybe five even eight shares of Nike almost a full position, if it drifts down to this $80 mark, that's on a thousand dollars investment.

It's a bellwether, it will preview what's gonna happen, especially to apparel companies, and especially companies that had a retail footprint that was closed most of the March, April and May in the United States.