Nike’s Stock Value is Highly Sensitive to its Footwear Business
Nike (NYSE:NKE) is the largest global manufacturer of athletic footwear, apparel and equipment by sales volume, and competes with Sketchers (NYSE:SKX), Adidas AG (ETR:ADS), Steven Madden (NASDAQ:SHOO) and K-Swiss (NASDAQ:KSWS) in the global footwear market. It sells its products under several brands including Nike, Nike Golf, Converse, Cole Haan, Umbro, and Hurley.
We maintain a $77.52 price estimate for Nike’s stock, roughly 13% below market price.
Strong Brand, Growing Market Share
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Nike’s global footwear market share has grown steadily over the years – from roughly 14% in 2005 to 17% in 2010. The growth is mainly attributable to Nike’s continuous evolution of its product line and marketing initiatives targeting budding athletes at the college level and below. All this, of course, is in addition to its extensive market of casual sports fans.
In addition to its strong brand name and large distribution channel, Nike’s expansion opportunities, innovative product development, and marketing strategies should contribute towards growth in its footwear market share. We anticipate that Nike’s footwear market share will climb steadily over the years ahead, crossing 20% by the end of our forecast period.
Nike has tremendous expansion opportunities in emerging markets like India and China, which could potentially offset recent weakness in the U.S. (See Nike’s Commodity Costs Rising, but Expansion Opportunities Could Lift Stock and Opportunity Lies Ahead for Nike in India)
The company also has a strong R&D division that manages to continually update and evolve its product lines. For example, Nike previously collaborated with Apple to create a footwear product that tracks a runner’s distance and speed, and communicates the information to the person’s iPod.
Nike also organizes and sponsors a variety of sporting events (like soccer and basketball) at the U.S. college level. The events attract athletes to Nike products and can potentially establish product loyalty among both the players and fans.
Considering the importance of the footwear business to Nike, we pose the following question:
What is Nike Footwear’s Contribution to Nike’s Overall Stock Value?
A) 15%
B) 30%
C) 45%
D) 60%
Click a response above to see the answer