NIKE, Inc. (NKE): Why You Should Buy This Market Leader

It’s good to be a leader, both in life and in stock market. NIKE, Inc. (NYSE:NKE) is a clear leader in the sport apparel and shoes segment. The company is enjoying everything that a true leader would enjoy: fame, power and money. The company’s recent quarterly report has confirmed Nike’s position. Here’s why I think Nike can find a place in your portfolio.

The report shows strength

NIKE, Inc. (NYSE:NKE) has reported earnings of $0.76 per share, beating analysts’ estimates. Quarterly revenue came at $6.7 billion, up 7% year over year. Nike revenues grew in almost every geography except for Western Europe and China. The growth of revenues was followed by a growth in gross margin, which is a very healthy sign.

North America remains the stronghold for NIKE, Inc. (NYSE:NKE). The sales in this region grew 12%, driven by a strong brand position and good sales execution. Emerging markets grew 8%, being another bright spot. Good dynamics were seen in other Nike’s brands. Converse, Nike Golf and Hurley grew 9%, 9% and 5% respectively.

The battle for China

China remains an enigma for sport apparel companies that try to conquer the country. NIKE, Inc. (NYSE:NKE) was pleased to announce that China sales were flat in the most recent quarter after declining 8% in the previous quarter. Other sport apparel companies, like Under Armour Inc (NYSE:UA) and Lululemon Athletica inc. (NASDAQ:LULU), also struggle to get this puzzle solved.

Nike’s strategy in China is patience. The company is building a reliable retail network to promote and sell its products. In addition, the company has to find a pricing strategy that will work well. Despite the decade of growth in China, a big number of Chinese consumers continues to be very price sensitive. Nike has been offering discounts to convince consumers to try the brand.

Under Armour and Lululemon are trying to find their own ways to get in. In contrast to NIKE, Inc. (NYSE:NKE), they do not possess such a huge marketing machine. Lululemon Athletica inc. (NASDAQ:LULU)’s CEO is about to leave the company on the verge of the global expansion of the brand. In addition to this, Lululemon’s products are pricey. In a lot of cases, they are even pricier than Nike’s comparable products. This fact could present difficulties for the company when it tries to reach the Chinese consumer.

Although Under Armour Inc (NYSE:UA) has expressed its interest in China, the company seems to lack knowledge on how to win this market. In the meantime, it is possible that Under Armour is not laying all its cards on the table yet. It may unveil more of its Chinese market strategy in its next earnings report, which is scheduled for late July.

Valuation and growth prospects

NIKE, Inc. (NYSE:NKE)’s solid growth machine is selling at a reasonable price. The company’s stock trades at 18.2 forward price-to-earnings ratio and yields 1.32%. Nike also has a share repurchase program under way. During the most recent quarter, the company has repurchased 4.2 million shares for approximately $242 million.