After the closing bell on Thursday, Nike (NYSE:NKE) will report its earnings for the fiscal quarter ending May 2015. Wall Street is predicting FQ4’15 EPS to come in at $.84, having significantly underestimated EPS every quarter for the past 8 quarters. The Estimize consensus is projecting a slightly higher EPS of $.88, and it has been within 1 cent of Nike’s actual EPS in 4 of the last 8 quarters.
Nike is a world leader in marketing, designing, and distributing athletic footwear, apparel, accessories, and equipment, and it controls over 60% of the footwear market share. The company recently announced a partnership with the NBA to take over its licensing of apparel from Adidas (XETRA:ADSGN) starting in 2017, making Nike the first company to have its logo appear on NBA players’ uniforms. The deal will commence at the beginning of the 2017 - 2018 NBA season and last for 7 years. ESPN has estimated the value of Nike’s new partnership at over $1 billion.
In terms of its financials, Nike has slightly underperformed when compared to the industry average. Experiencing 19% revenue growth in China and 23% growth in Western Europe, Nike increased revenue by 7% since the same quarter one year prior, though lower than the industry average of 9.7%. However, the company’s stock price may tell a different story. Year-to-date, Nike’s stock price has increased 11.25% when compared to the S&P 500’s increase of 3.34%.
Currently, NKE is trading near its all-time high price of $107.45. This price surge has seen Nike’s trailing twelve month price-to-earnings (P/E) ratio expand quite dramatically. Nike has been trading on a 30.54X P/E ratio, which is significantly higher than its 5 year average of 23.10X. The two charts below give a glimpse into the expansion of Nike’s P/E ratio in the past 5 and 15 years, respectively.
Nike’s continued success will depend on its ability to further increase its earnings and control costs. The company must continue to innovate across its broad range of products in order to ensure its future success. Thursday will be telling for Nike as it posts earnings and looks to justify its high multiple.