Nike's Future Remains at the Top

Sporting goods giant Nike (NYSE: NKE  ) has a wonderful problem: The market thinks it's the perfect company. Unmatched brand power, tremendous international footprint, diversified lines of business, great management -- even the most "contrarian" analysts had a hard time speaking anything but praise for one of the world's greatest brands. Last week, the company delivered its latest earnings, showing substantial growth across every single one of its segments, but perhaps not dramatic enough to tweet about. Nike may not forever grow at a lightning pace (and it certainly won't happen with unflinching consistency), but this is one of just a few companies that investors can buy today and check in 20 years later without missing a (material) beat.

Just 8%
The $70 billion corporation saw shares fall by roughly 2% the day it released earnings, while the company posted revenue gains of 8% to $6.4 billion and a diluted EPS gain of just 4% to $0.59. Analysts were expecting about $10 million more on the top line and a penny less on the bottom line.

Futures orders grew 13% year over year on a worldwide scale, driven by growth in, well, everything. Nike's core brand is showing incredible resilience in the otherwise tepid retail environment, and its Converse segment just posted double-digit sales gains.

Gross margins increased 140 basis points, driven by higher average prices and lower input costs.

The stock's drop on Friday was benign and, ultimately, irrelevant, but it should remind investors of just how minor an earnings report (and subsequent earnings reaction) can be.

Dominant
Nike practically prints cash. The company has the ability to make acquisitions every day and pay top dollar, but it rarely does. Its bolt-on purchases have been wise and addressed markets that the company hasn't already inundated (see: Converse).

Barron's suggested that sales may slow in coming quarters, as the company could be exiting its impressive run of the past several months. I'm inclined to agree, but this shouldn't matter to the long-term investor.

The strongest argument against Nike today is a discussion on pricing and valuation. By historical measures, Nike is expensive -- that's because the market has fawned over it, without restraint, since July 2012. No matter how great a company or how impressive its sales figures, market valuation has to approach reality one day. Perhaps now that analysts are worried about the next few quarters, we will see the price come down and valuation correct. But even still, Nike isn't any more expensive than, say, fashion retailer Michael Kors. Kors will grow faster for the next few years, but it's a much harder stock to play for the long term. Hot fashion stocks are fantastic for those who buy them before they earn the "hot" designation. If and when consumers tire of the MK on their purses, investors will need a good reason to justify the multiple.

Nike, on the other hand, is in it for the long run. The company doesn't chase fads (with some exceptions, granted) and instead cultivates an image as a reliable go-to for all things sports. For as long as sports exist, so will Nike.

Prospective investors have the option of waiting a few months and seeing if analysts are right -- the stock price and growth are cooling. If that happens, they can jump in at a lower cost. For existing investors, though, don't think about getting out. Nike has a bright, long future ahead. 

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