Comparing Nike’s Current Valuations to Its Earnings Potential
In the final part of this series, we’ll look at Nike’s (NKE) current valuations and discuss its earnings potential. We’ll also compare the company with its closest peers in the industry.
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Nike’s current valuations
Nike (NKE) stock is currently trading at a one-year forward price-to-earnings (or PE) ratio of 21.5x, operating close to the lower end of its 52-week PE range of 21x–31x. Not only is the company cheap compared to its own valuations, but it also trades at a discount to its rivals Under Armour (UAA) and Lululemon Athletica (LULU). UAA and LULU are currently trading at next 12 months’ earnings of 47x and 27x, respectively.
However, Columbia Sportswear (COLM) is slightly cheaper in relation to Nike, trading at 19.8x. All valuations are current based on December 22, 2016, data.
After displaying an average EPS (earnings per share) growth of 17% over the last three fiscal years, Nike’s (NKE) EPS growth is predicted to be ~9% in fiscal 2017. Foreign exchange headwinds from the expected strengthening of the US dollar have put downward pressure on the company’s expected results for fiscal 2017.
Comparing NKE’s earnings potential to its peers
Although Under Armour (UAA) has given Nike some tough competition in recent years, its focus on increasing its market share has taken a toll on its profitability. As a result, its EPS growth has fallen from 31% in fiscal 2015 to 9.5% in fiscal 2016. The company’s earnings are now expected to increase only 3% over the next 12 months (or NTM). In comparison, Nike’s NTM EPS could jump 7.5%. Nike’s valuation is less than half of Under Armour’s valuation.
However, Columbia Sportswear and Lululemon have better earnings potential. The two companies are likely to witness EPS growth of more than 18% over the next 12 months.
ETF investors seeking to add exposure to NKE can consider the US Consumer Goods ETF (IYK), which invests 3.3% of its portfolio in NKE.