Spotlight: Nike

What does the future hold for Nike (NYSE:NKE), one of the largest companies in the world? We often see that stocks as large as Nike are fairly stable and therefore interesting stocks for investors who are not willing to take much risk. For Nike this is not the case. Nike has a higher volatility compared to the average stock on the Dow Jones index. Moreover, Nike stocks are relatively expensive at the moment, because it has a Price/Earnings-ratio of 27. Usually, if a company has high volatility and a high P/E-ratio you expect the company to have a high growth rate to justify these numbers. Nike shows a steady growth rate of about 11-12% each year. This growth rate may be too low if you look at the current stock price of Nike. On the other hand, what Nike does really well is reaching the Chinese consumer market, where the middle-class is increasingly buying Nike products. Nike has also recently reformed its business model in China, reducing overhead costs. Therefore, the growth rate may be, relatively to competitors, on the low side, but the growth rate is also relatively more steady. This steady growth rate will counter the volatility-threat of Nike. If we also take the regular dividend payments of Nike into account (about 1,2% per year) we see that Nike may be an interesting investment for the patient investor as we may not expect miracles from Nike overnight. As with each company, Nike also faces some risks concerning its revenue growth. Because Nike is active in all corners of the world, it also faces the risk when there is an economic downfall and disposable income is reduced. Since Nike is highly dependent on consumer spending, this could harm the growth rate if the economy stagnates or even fails. However, this threat is not very probable to occur for a longer period in time soon and thus Nike may still be considered a solid investment for the long term.