New Zealand markets open in 9 hours 14 minutes
  • NZX 50

    10,958.81
    -59.79 (-0.54%)
     
  • NZD/USD

    0.6231
    -0.0009 (-0.14%)
     
  • ALL ORDS

    6,877.90
    -75.50 (-1.09%)
     
  • OIL

    113.35
    +1.59 (+1.42%)
     
  • GOLD

    1,832.30
    +11.10 (+0.61%)
     

NIKE's (NYSE:NKE) five-year earnings growth trails the splendid shareholder returns

·3-min read

It hasn't been the best quarter for NIKE, Inc. (NYSE:NKE) shareholders, since the share price has fallen 21% in that time. But that doesn't change the fact that shareholders have received really good returns over the last five years. Indeed, the share price is up an impressive 122% in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Of course, that doesn't necessarily mean it's cheap now.

Since the stock has added US$10b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for NIKE

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, NIKE managed to grow its earnings per share at 9.7% a year. This EPS growth is slower than the share price growth of 17% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We know that NIKE has improved its bottom line lately, but is it going to grow revenue? Check if analysts think NIKE will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for NIKE the TSR over the last 5 years was 134%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that NIKE shareholders are down 14% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 6.6%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 19%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for NIKE that you should be aware of.

But note: NIKE may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting