Stocks for the Long Run: Nike vs. the S&P 500

<p>A long history of solid returns.</p>

Motley Fool Staff
Motley Fool Staff
Sep 5, 2012 at 2:14PM
Consumer Goods

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500. 

Step on up, Nike (NYSE:NKE).

Nike shares have simply crushed the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 23.6% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Nike, it'd be worth $870,500.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about a quarter of Nike's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Nike's earnings compare with the S&P 500's earnings: 

Source: S&P Capital IQ.

Again, that's big outperformance. Since 1995, earnings per share have increased by an average of 10% per year, compared with 6% annual growth for the broader index.

What has that meant for valuations? Nike has traded for an average of 22 times earnings since 1987 -- close to the 24 times earnings average of the S&P 500.

Through it all, shares have been strong performers over the last quarter-century.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Nike with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below or add Nike to My Watchlist.