Nike Inc. (NYSE:NKE) has under-performed thus far in 2014, retreating by -5.42% YTD, but for long-term investors there are plenty of both qualitative and fundamental reasons to be bullish on the future of the athletic apparel maker and its stock. In fact, this may be a great time to pick up some shares at a discount.
1. Wide Moat - While it's true that almost any apparel manufacturer may be able to reasonably replicate many of Nike's products, Nike's marketing machine is simply unmatched in the industry. The company's famous logo is recognized world-wide and the brand is continually endorsed by the best athletes in the world. The sheer power of the brand alone creates the type of "wide moat," which Warren Buffett famously endorses as one key to his investment philosophy.
2. Still Innovating - Have you ever picked up a pair of Nike Anodyne DS running shoes? My wife recently came home with two pairs, in different colors, of course. I picked one up to examine the unique web-like mesh structure and was floored by the shoe's lack of weight. It's mind-boggling how a shoe could be this light. Not bad for a company that originally made its soles with a waffle iron.
3. NFL Apparel Contract - While Nike's contract with the NFL is old news by now, its power going forward should not be underestimated. Don't forget that the company infiltrated the NCAA market years ago and that's not going away either. Any football fan knows how expensive jerseys are, especially the Nike NFL "Elite" versions (made to mimic the actual player jerseys), selling for just shy of $300 each. Additionally, the nature of the modern NFL, where roster turnover from season to season is relatively high, provides a built-in incentive for repeat purchases every few years. Of course, it's not just jerseys we're talking about here, but hats, T-shirts, outerwear, etc.
4. International Footprint - The primary reason the brand is so widely recognized is because you can buy Nike gear almost everywhere in the world. The company's revenue stream is not reliant on a single market or country. This makes Nike less susceptible to micro-economic fluctuations in any one of its many markets, and less likely to be significantly affected by the faltering of any single country's economy or currency.
5. Crossover Appeal - One of the best things about Nike apparel is that you don't actually have to be an amazing athlete to wear and appreciate the products. While Nike's products are great for actual physical activity, it turns out that athletic apparel and sneakers are just really comfortable, and have become everyday casual wear for millions of people.
6. Room to Grow - Nike is likely to be a player in the newly developing 'wearable tech' industry. The focus here is the marriage of fabric and microchips. The industry has already given birth to a range of high tech athletic apparel products designed to monitor, assess and analyze an athlete's physical performance, vital signs and more. It seems only natural that Nike will participate in this new and growing market.
7. Price to Earnings Growth - Nike's 5-year projected growth figures imply a current PEG ratio of 2.0. While this may not be quite low enough for hardcore value investors, when compared to the 2.9 PEG ratio of the S&P 500 Index, it equates to a 31% discount.
8. Financial Strength - Nike's financial position is solid. Its current ratio of 3.4 and quick ratio of 2.4 show that the company has more than enough current assets to cover its short-term liabilities. Furthermore, the company carries very minimal debt in general. The total debt/equity ratio is just 0.1.
9. Effective Management - The all-important return on equity measure for Nike is a very respectable 24.75% (TTM). Management is not just sitting on investor cash, they're putting it to good use.
10. Growing Dividend - Not only is Nike still growing, but so is its dividend. Nike's current dividend yield is very acceptable at 1.70%, but what's more is that the company has been consistently raising it. The dividend has grown 13.11% in the past 5 years. Meanwhile, Nike's payout ratio is just 27.3, meaning the dividend growth pattern should be in no immediate danger of reversing.
Disclosure: I am long NKE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.