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Nike's Not Getting Tired

Essentially, with Adidas in footwear and Lululemon in apparel, Nike is being attacked by two companies that are well positioned to compete not only in innovation but also in brand appeal. Now, I'm not discounting Nike's string of strong performances amid weakness in China and here in the U.S. I also appreciate there are now signs both economies are beginning to rebound.

Truth be told, though, Nike stock has been expensive for six months, as I discussed here. To that end, I don't believe economic improvements in the U.S. and China will change this fact. Before you disagree, consider that Nike is valued at more than 22 times its earnings for this fiscal year. Further, given that the company's price-to-earnings ratio is at 25, this means shares are trading at a valuation that is five points higher than the company's five-year P/E average of 20.

On Thursday, when Nike reports fiscal first-quarter results, the company will have another chance to run over the valuation argument. The Street will be looking for earnings of 78 cents per share on revenue of $6.97 billion, which would represent year-over-year revenue growth of 7.6%. Given that Nike reported an 8% increase in its "futures" orders in the June quarter, I have no doubt the company will beat its revenue target.

Futures -- as it sounds -- represent something like a "backlog" or a relied-upon commitment to buy. It's not an exact science for predicting Nike's sales, but it's a worthwhile gauge of product interest. In that regard, and as I've said, I really can't fault investors for having rewarded the stock with such strong gains.

My issue is strictly with the valuation. I'm not suggesting long-term holders can't still do well here. But Nike would have to fall below $60 for me to touch it with my own money.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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