Nike Inc (NYSE:NKE) has had a nice run over the last 12 months, climbing 38% over that time. The stock now trades at its 52-week high and has reached a rich valuation. Nike’s trailing P/E is 30 and its forward P/E is 27.6. In comparison, the S&P 500 trades at a trailing P/E of 19.4 and a forward P/E of 18.6. Still, Nike is cheaper on a relative basis than its competitor, Under Armour Inc (NYSE:UA). Under Armour trades at trailing and forward P/E multiples of 88 and 58, respectively. Both companies trade high looking out even further, but Nike still trades relatively lower on a PEG basis. Nike’s PEG ratio is 2.24, while Under Armour Inc (NYSE:UA)’s is 3.2. Any way you cut it, both companies are expensive when considering the valuation metrics explored here.
Insider activity at Nike has been routinely characterized by the exercise of options followed by the selling of those shares. No major acquisitions or dispositions have occurred in the last couple of months, but Jeanne Jackson, Nike Inc (NYSE:NKE)’s President of Product and Merchandising, sold 16,000 shares in June after exercising options for the same amount. Save for 790,000 shares acquired by insiders through non-open market transactions, selling has predominated insider activity in the shares of Under Armour. The most significant recent insider selling in Under Armour occurred back in April when insiders sold 420,000 shares.
Studies show that insider trading can produce alpha. While there are many reasons why an insider would sell, there is only one reason why an insider would buy. Academic research shows that certain insider purchases have outperformed the market by an average of 7 percentage points per year. Another way to beat the market is by following the small-cap stock picks of hedge funds. Our research shows that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month on average between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they’ve continued to excel, returning more than 142% over the ensuing 2.5 years and outperforming the S&P 500 Index by over 83 percentage points (read the details here).