It’s not often that a chart will be used in an introduction, but in this case, it’s important. Below are three-year performances for NIKE, Inc. (NYSE:NKE)
, Under Armour Inc (NYSE:UA)
, and Lululemon Athletica inc. (NASDAQ:LULU)
. When you look at this chart, you might ask yourself why you would consider investing in Nike over Under Armour and Lululemon, but it’s important to keep in mind that investing should always be forward-looking.
data by YCharts
If you want a growth/momentum play, then you might be interested in Under Armour Inc (NYSE:UA) or Lululemon Athletica inc. (NASDAQ:LULU) over NIKE, Inc. (NYSE:NKE), but if you’re looking for steady long-term growth, then Nike is the place to be.
NIKE, Inc. (NYSE:NKE) is, by far, the strongest brand of the three, and the brand is growing on a global scale. Try to imagine a time when Nike was an up-and-coming name in the United States. A lot of consumers jumped on the bandwagon and bought Nike products because it was the cool thing to do. Good quality didn’t hurt either.
Well, that trend is taking place once again. Only this time, NIKE, Inc. (NYSE:NKE) is improving its brand recognition on a global scale. As incomes continue to increase for consumers in emerging markets, this should bode well for Nike. Future orders have increased in North America, China, and even Europe. Only Japan has seen a decline in future orders.
It should also be noted that NIKE, Inc. (NYSE:NKE) commands 20% market share in global athletic footwear. The projected compound annual growth rate through 2018 in this category is 1.8%. That might not be a big number, but any type of growth in the current global economic environment is a positive.
NIKE, Inc. (NYSE:NKE)’s management and company culture couldn’t be much stronger. According to Glassdoor.com, a very impressive 91% of employees approve of CEO Mark Parker. This is an extremely high number for such a large company. In most cases, employees are frustrated with a lack of advancement opportunities, but the Nike culture is one that breeds optimism and action, which leads to employees feeling as though they’re playing an important role. This, in turn, leads to increased production. It’s all part of a positive cycle.
Management is also stellar on the innovation front. Recent innovative examples include Free Flyknit sneakers (compression fit with free flexibility), Hyperfeel (designed with natural motion principles to amplify the body's natural ability), and Aeroloft athletic apparel (retains body’s heat while allowing vapor release with perforated down technology).
Yet another positive is management’s ability to manage costs, which improves margins. For example, NIKE, Inc. (NYSE:NKE) recently divested Cole Haan and Umbro. Nike won’t hesitate to divest underperforming brands if doing so improves the bottom line. This is a big positive for investors.
Under Armour Inc (NYSE:UA) is also a well-run company. Under Armour CEO Kevin Plank often states that he likes to be the one playing catch up, not the one with the target on his back. His point is that it’s easier to steal market share than it is to keep it.
Under Armour Inc (NYSE:UA) has a loyal following, and top and bottom-line growth have been strong. However, Under Armour is trading at 54 times earnings, making it a lot more expensive than NIKE, Inc. (NYSE:NKE) at 23 times earnings.
It’s possible that Under Armour Inc (NYSE:UA) will steal significant market share from NIKE, Inc. (NYSE:NKE) in the future, but it’s not as likely as you might think. Nike has close to $6 billion in cash versus Under Armour’s close to $266 million in cash. Based on these numbers, Nike will be able to launch much more powerful marketing campaigns on a global scale, and once it establishes a strong footprint in an overseas market, it will be difficult for Under Armour to gain ground.
Also, if Under Armour Inc (NYSE:UA) makes market share improvements (in any market), NIKE, Inc. (NYSE:NKE) has enough cash on hand to acquire smaller companies for inorganic growth.