Ken Fisher is a billionaire fund manager and columnist for Forbes whose stock picks have tended to outperform the market. During the second quarter of 2012, according to our database of 13F filings, Fisher Asset Management increased its stake in footwear manufacturer NIKE, Inc. (NYSE:NKE) to a total of 3.7 million shares. Since the fund had only owned about 50,000 shares of Nike at the beginning of the quarter, we would say that Fisher and his team were making a confident stock pick (see more stock picks from Fisher Asset Management).
Other fund managers took an interest in Nike during the second quarter as well. Renaissance Technologies initiated a position and owned 1.6 million shares at the end of June. Renaissance’s success since inception has enabled founder Jim Simons to build a net worth of about $11 billion (find more stocks Renaissance Technologies has been buying). Jim Cramer is also a fan of Nike, as his charitable trust currently owns shares of the stock. This made Nike one of Cramer’s five favorite growth stocks (research more growth stocks Jim Cramer likes).
Nike’s last fiscal year ended in May 2012. Revenue was up 16% over the last fiscal year, and has grown at a CAGR of 7% over the last four years. Net income was also up, with the company posting a 4% growth rate over the year ending in May 2011. However, earnings per share were up 8% due to share repurchases- NIKE has historically been an aggressive buyer of its own stock ($10 billion over the last 10 years, according to the company). Over the last four fiscal years, EPS grew at a 6% annual rate while net income only grew at a 4% rate. Nike’s board recently approved an $8 billion repurchasing program that is expected to last about four years, so the company should continue to generate EPS growth from that trend.
As an owner of a strong global brand, NIKE is able to charge a price premium. While it would be expected that the company would therefore have a lot of exposure to a poor macro environment, this is not in fact the case: the stock’s beta is 0.9 so it actually tends to rise or fall about in line with the broader market. It is actually up 71% over the last five years. At a $45 billion market capitalization, Nike trades at 21 times trailing earnings and 19 times expected earnings for this fiscal year.
We would compare Nike to two sportswear companies, Under Armour Inc (NYSE:UA) and Gildan Activewear Inc. (USA) (NYSE:GIL), as well as two shoe companies, Skechers USA Inc (NYSE:SKX) and Deckers Outdoor Corp (NASDAQ:DECK) to represent that it is best known for its shoe products but has a focus on athletic attire and does sell other apparel in that vertical as well. These companies are all considerably smaller than Nike, with a combined market capitalization of $12.4 billion (and about half that figure being Under Armour). Deckers, after dropping 58% over the last year, posted 13% revenue growth in its most recent quarter compared to a year ago and could be a good value at a trailing P/E of 9. Billionaire Chase Coleman’s Tiger Global has a large position in the stock. Skechers is unprofitable on a trailing basis, having lost money each of the last three quarters (though in the last two the losses have been less than the Street expected). The sell-side expects a strong rebound next year but its current price is still 26 times consensus earnings. Nike’s trailing P/E is actually well below the sportswear peers: Gildan’s is 33 and Under Armour’s is 61. Under Armour even trades at 37 times forward estimates, and its 7% revenue growth last quarter over a year ago is not particularly impressive. It might be a candidate to short in a pair trade with Nike. Analysts expect stronger earnings growth at Gildan, placing it at 13 times forward earnings. However, its earnings were down in its most recent quarter versus a year earlier and we would avoid it for now.