Did Nike Just Overdo It?

Late last year, I tagged athletic apparel and footwear icon Nike (NYSE: NKE  ) as the Best Blue Chip stock for 2007, and I must admit, I'm delighted at how things have turned out so far this year. Just yesterday, Nike sprinted to a new share price high after reporting impressive fourth-quarter and full-year earnings. But has the stock gotten ahead of itself?

First, a recap of the results. Nike merely met fourth-quarter analyst earnings expectations, but what really got investors going was that futures orders advanced 12%, implying that top-line trends have recently accelerated.

Total full-year sales results improved a respectable 9%, but management was able to leverage the increase into 11% diluted earnings growth, even though that fell slightly short of an internal goal to grow EPS in the mid-teens. Still, Nike appears to have the wind at its back, as international revenue is growing briskly and benefiting from a weak dollar, which serves to boost results when they're translated back to the domestic currency.

CEO Mark Parker confidently summed up the year by boasting that "Nike is a growth company, and fiscal 2007 was no exception. We delivered another record year of revenue, earnings and cash flow." I'll wait until the company files its 10-K to confirm the cash flow numbers, but based on past trends, it was able to post another year of solid free cash flow generation.

The only thing that worries me at this point is that Nike could quickly become a victim of its own success. Not too long ago, the shares traded at a very reasonable valuation as the market worried that growth was slowing and firms like Adidas of Germany, K-Swiss (Nasdaq: KSWS  ) , Under Armour (NYSE: UA  ) , Columbia Sportswear (Nasdaq: COLM  ) , and Skechers (NYSE: SKX  ) were starting to mount a collective challenge to the industry market share leader.

Thanks to the recent run, Nike now trades at about 16 times projected earnings for the coming year. And while some analysts are wary on the future outlook in the retail sector, I would expect earnings estimates to trend up because of the strong futures orders. The company has positioned itself for growth and is currently on target to meet its goals.

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Fool contributor Ryan Fuhrmann is long shares of Nike but has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool's athletic disclosure policy prefers to work out in Nike apparel.

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