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Nike: Good Company vs.Good Investment

Stocks in this article: NKE UA

NEW YORK ( F.A.S.T. Graphs) -- Recently, I happened upon an excerpt of TheStreet.com founder Jim Cramer's CNBC show "Mad Money." Specifically, I'm referencing the "Lightning Round" segment on Aug. 26.

The first question was about Nike (NKE), to which Cramer replied: "I like Nike. I like Under Armour even better."

Now, the second bit about Under Armour (UA) might very well be true, but I'd like to investigate the Nike comment a touch more. I'm guessing Cramer and I share a similar view on this subject, but I also believe that it's important to decipher the difference between a good company and a good investment.

Just because someone says they like or don't like something doesn't mean that you can substitute that for proper due diligence. It's always good to double-check what you're hearing. Even within this article, there are many more items that you would probably want to investigate.

The first thing that I would check when looking into Nike is the company's business results.

One of the easiest -- and, in my view, most efficient -- ways to do is by utilizing the fundamental analyzer software tool of F.A.S.T. Graphs. Here we see that Nike was able to grow earnings by about 13% a year (orange line). In addition, we can also see that dividends (pink line and blue shaded area) have begun to increase at a steady rate.

In turn, shareholdings were rewarded for holding a good company whose business performed well. Total shareholder returns compounded at an annual rate of almost 14%, trouncing the S&P 500 during the same period and basically mirroring Nike's business results.

Further, it's really not much of a secret why NKE was able to provide such steady business results. If we take a look at the Fundamental Underlying Numbers (FUN) Graphs, we see that Nike has had steady gross profit margins along with net profit margins. People are consistently willing to pay a premium for having a swoosh embroidered on their apparel versus sporting a "non-check mark" alternative. Additionally, it should be noted that the consistency of margins is perhaps more relevant than their growth. Growing margins would be great, but once a company is churning out profits, sustainability is paramount.

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