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Assessing Nike (NKE) Stock As NBA Finals Tip Off

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Nike (NKE - Free Report) is in the first year of its eight-year, roughly $1 billion jersey deal with the NBA. So as the NBA Finals begin Thursday night, let’s take a look at Nike stock to see if investors might want to consider buying a piece of the world’s largest sportswear company.

Star Power

When Nike won the NBA jersey rights a few years back, it was a big deal not only because of how much the company paid but also because Nike’s swoosh would be the first logo ever to appear on NBA game jerseys.

Nike’s iconic logo also appears on NFL jerseys, and the company signed a 10-year extension with the NFL in March that will see it remain the official apparel brand through 2028. And now there are even reports that Nike will sign a uniform deal with MLB, starting in 2020, with Under Armour (UAA - Free Report) set to back out from its scheduled deal.

Nike also happens to sponsor seven of the eight most famous athletes on the planet, according to ESPN’s (DIS - Free Report) recently published World Fame 100 list—LeBron James and Kevin Durant are two of these seven athletes.

To some, these sponsorships might seem unnecessary, but they provide the exposure that brands like Nike and German rival Adidas (ADDYY - Free Report) need. They must have their sportswear connected to the biggest leagues, teams, and athletes in the world.

Obviously, there are many other important factors for investors to consider, but it is worth noting just how big Nike’s presence is and how much value the company places on maintaining its relationships with the lifeblood of professional sports.

Recent Performance

Nike reported revenue of $8.98 billion during its fiscal third quarter, which marked a 7% climb from the year-ago period. Meanwhile, the company’s hugely important North American footwear sales slipped 8% to $2.29 billion. Luckily, much of this downturn can be attributed to overall market conditions in the U.S., and Nike’s presence throughout the rest of the world is bigger than ever. Nike’s Greater China revenues climbed 24% $1.34 billion, while sales in Europe, the Middle East, and Africa surged 19% to $2.29 billion.

Price Movement

Moving on, Nike stock has performed well recently and over the last decade. Shares of Nike have soared 322% over the last 10 years, outpacing the S&P 500’s 113% climb. Over the last three years, Nike stock is up 40%. Scaling down, even more, shares of Nike have popped 37% during the last year, which tops the S&P 500 and rival Adidas, despite the German company’s wave of North American success. Year to date, Nike Stock is up 14%.

 

Valuation

Nike’s recent price movement has helped the stock rest just below its 52-week high of $73.49 per share, which might make some investors nervous. The company’s strong performance has also caused Nike’s valuation to look just a tad bit expensive at the moment. Coming into Thursday, Nike stock was trading at 27.3X forward 12-month Zacks Consensus EPS estimates. Over the last year, Nike has traded as high as 27.6X, as low as 20.6X, with a one-year median of 24.5X.

Investors can also see that Nike’s valuation picture has slowly grown worse since November 2016. With that said, investors have clearly seen a reason to pay a premium for Nike stock over this same time period, as the company has consistently traded above its industry’s average—which includes the likes of Ralph Lauren (RL - Free Report) , Michael Kors (KORS - Free Report) , Columbia Sportswear (COLM - Free Report) , and more.

Growth Outlook

One of the last key factors many investors will want to take a look at is Nike’s growth picture. Our current Zacks Consensus Estimates are calling for Nike’s Q4 revenues to climb by 8.4% to $9.40 billion. Meanwhile, Nike’s quarterly earnings are projected to sink by 13.3% to touch $0.52 per share.

With that said, investors should not worry too much about Nike’s bottom line at the moment as the company makes a massive shift toward e-commerce and direct-to-consumer selling that is aimed at helping Nike better compete in a retail world that is shifting to Amazon’s (AMZN - Free Report) model.

Nike is currently a Zacks Rank #3 (Hold) and sports a “B” grade for Growth in our Style Scores system.

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