The Coca-Cola Company (KO), Under Armour Inc (UA): Does NIKE, Inc. (NKE) Deserve to Be in the Dow?

Becoming one of the elite 30 stocks that count themselves as members of the Dow Jones Industrial Average represents a pinnacle of corporate achievement, and given the infrequency with which new stocks are inducted into the index, it’s an achievement that even many well-deserving companies never attain.

However, earlier this week the committee that oversees the average announced that three new Dow members would join the index’s ranks later this month. One of them is NIKE, Inc. (NYSE:NKE), which has transformed the athletic-apparel industry in its roughly 50-year history. The Dow has certainly had no shortage of well-known consumer-goods companies with strong brand presence; The Coca-Cola Company (NYSE:KO)‘s No. 1 global brand is simply the most high-profile example. But Nike’s success in taking its niche from infancy to a massive business closely aligns with the track records of many current Dow giants. Let’s take a closer look at NIKE, Inc. (NYSE:NKE) to see whether it truly deserves to be in the Dow.

The economics of sports apparel

In hindsight, the secret of Nike’s success seems simple. Over the decades, NIKE, Inc. (NYSE:NKE) has masterfully taken advantage of the popularity of sports to promote and develop product lines that command high demand from consumers willing to pay premium prices. Rather than relying on short-term fad products, Nike has instead played the long game with advertising campaigns that adapt well to a wide variety of sports and celebrity endorsement partnerships covering top players in both established sports leagues and rising new sports.

NIKE, Inc. (NYSE:NKE)’s status atop the industry has helped make the company more attractive to potential partners, which in turn has produced even bigger gains. For instance, last year Nike became the official supplier of apparel for the National Football League, ousting Reebok and giving Nike yet another high-profile stage on which to showcase its products.

NIKE, Inc. (NYSE:NKE) has also made some smart strategic decisions in its time. A decade ago, the company bought Converse for $305 million, giving the company a second major athletic-shoe brand to complement its namesake brand. In fiscal 2013, Converse generated almost $1.45 billion in revenue, showing the foresight Nike had both in acquiring Converse and in allowing it to retain its separate brand identity.

Yet Nike also realizes when it has bitten off more than it can chew. The company completed its sale of its upscale shoe business Cole Haan to a private-equity firm for $570 million earlier this year, as Nike recognized the segment was a distraction from its core sports focus.

Can Nike stay in front of the pack?

The Dow likes companies that will remain industry leaders, and Nike looks poised to stay on top of its game. But the company still faces potential threats, and the biggest might be relative newcomer Under Armour Inc (NYSE:UA).