Nike Is A Great Company, But The Stock Is Expensive

Summary

• Nike's quarterly revenue grew 14%, ignoring foreign currency headwinds, while gross margins held steady at 45.9%, and future orders increased 17%.
• The company continues to be a market leader in designing cutting-edge products and creating a consumer experience through strategic partnerships and the development of an engaging social platform.
• With a current price-to-earnings ratio of above 30, the company's stock appears to be expensive, and investors should wait for additional weakness before purchasing.

Nike (NYSE:NKE) reported strong earnings on March 22, 2016, as Q3 2016 revenues grew an impressive 7.6% to $8.03 billion. More importantly, revenue excluding currency headwinds increased 14%, gross margins held steady at 45.9%, and future orders increased 17% excluding currency headwinds. Despite these strong numbers, shares fell in response due to a lower-than-expected revenue growth, annual futures growth, and cautious sales and EPS guidance. However, as a long-term investor, it is important to look at the big picture and analyze the keys to Nike's future success.

Nike continues to be a leader in technology when it comes to sports apparel. This can be seen in the company's iconic shoe product line and the introduction of LunarEpic, Free RN Motion, and Mercurial Superfly. Each product is innovative in its own regard and the backbone of Nike's future growth. Additionally, the company unveiled its auto adaptive lacing with the Nike HyperAdapt 1.0, which is expected to transform the way we wear shoes. The HyperAdapt 1.0 utilizes technology to create an adaptive lacing for athletes, which constantly monitors and adjusts the way shoes fit. Nike continues to lead on the technology frontier when it comes to its product lines, which is critical to the company's long-term sustainable success.

In the basketball shoe realm, Nike continues to take advantage of superstar relationships with Michael Jordan, Kobe Bryant, and Kevin Durant while also creating excitement around younger players including Zach LaVine and Aaron Gordon. Because of these important strategic relationships, the company enjoys a market share of over 90% in basketball sneakers. This continued success comes in the face of Nike losing several key superstars, Stephen Curry and James Harden, to key competitors. While these major signings by adidas (OTCQX:ADDYY) and Under Armour (UA) haven't hurt the company's market share, NKE

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.