A Side-by-side Analysis of NIKE, Inc. (NKE) and Equinor ASA (EQNR)

NIKE, Inc. (NYSE:NKE) shares are up more than 26.19% this year and recently increased 0.07% or $0.07 to settle at $93.56. Equinor ASA (NYSE:EQNR), on the other hand, is down -12.42% year to date as of 12/02/2019. It currently trades at $18.54 and has returned -3.44% during the past week.

NIKE, Inc. (NYSE:NKE) and Equinor ASA (NYSE:EQNR) are the two most active stocks in the Textile – Apparel Footwear & Accessories industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NKE to grow earnings at a 16.82% annual rate over the next 5 years. Comparatively, EQNR is expected to grow at a 8.10% annual rate. All else equal, NKE’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. NIKE, Inc. (NKE) has an EBITDA margin of 14.67%. This suggests that NKE underlying business is more profitable NKE’s ROI is 32.00% while EQNR has a ROI of 12.80%. The interpretation is that NKE’s business generates a higher return on investment than EQNR’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. NKE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, EQNR’s free cash flow per share was +1.82. On a percent-of-sales basis, NKE’s free cash flow was -0.6% while EQNR converted 7.63% of its revenues into cash flow. This means that, for a given level of sales, EQNR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NKE has a current ratio of 2.00 compared to 1.30 for EQNR. This means that NKE can more easily cover its most immediate liabilities over the next twelve months. NKE’s debt-to-equity ratio is 0.40 versus a D/E of 0.70 for EQNR. EQNR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NKE trades at a forward P/E of 27.12, a P/B of 15.88, and a P/S of 3.69, compared to a forward P/E of 9.36, a P/B of 1.51, and a P/S of 0.90 for EQNR. NKE is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NKE is currently priced at a -8.34% to its one-year price target of 102.07. Comparatively, EQNR is -22% relative to its price target of 23.77. This suggests that EQNR is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. NKE has a beta of 0.83 and EQNR’s beta is 1.02. NKE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. NKE has a short ratio of 1.16 compared to a short interest of 1.97 for EQNR. This implies that the market is currently less bearish on the outlook for NKE.

Summary

Equinor ASA (NYSE:EQNR) beats NIKE, Inc. (NYSE:NKE) on a total of 7 of the 14 factors compared between the two stocks. EQNR is growing fastly and has a higher cash conversion rate. In terms of valuation, EQNR is the cheaper of the two stocks on an earnings, book value and sales basis, EQNR is more undervalued relative to its price target.