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

Next year will see the Winter Olympics in Russia and the World Cup in Brazil. Such big events are typically big drivers for sports companies if they are in good shape and can successfully market their products. Nike is in perfect shape with almost $6 billion in cash and short-term investments on its balance sheet. The company has only $1.2 billion of long-term debt.

Lululemon’s share prices were slashed after the announcement of CEO departure, and the company’s stock is now down 14% year-to-date. The growth was good at Lululemon, but investors are expressing their concern about the sustainability of this growth. Lululemon is trading at 25.5 forward price-to-earnings ratio, which might be considered fair given the uncertainty surrounding the company and its growth strategy.

Under Armour, which is up 23% this year, trades at 32.6 forward price-to-earnings ratio. Under Armour is expanding its running segment, which is a smart move as running is the leading segment for Nike. At the same time, the company must provide serious growth to justify its price. China is currently the biggest underserved market, and the company’s strategy there remain foggy.

Bottom line

NIKE, Inc. (NYSE:NKE) is attractively priced. The company generates growth across its segments and geographies. The most interesting growth possibility for Nike remains China. Although the company states that Chinese sales will be down in the next quarter, I believe that its strategy there will eventually pay off. Nike has great quality of execution, and this would certainly help the company in the fight for such a tempting market.

All in all, buy the leader.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Why You Should Buy This Market Leader originally appeared on Fool.com and is written by Vladimir Zernov.

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