Should Investors Buy Nike Stock After Its Latest Earnings?
Nike stock is up 6% in twenty-one trading days. There are several reasons to be bullish on the stock. First of all, it has beaten analyst estimates for 25 consecutive quarters. Second, it has a very strong balance sheet and an optimistic outlook. Third, it has a dominant position in its industry.
NKE stock has gained 6% in the last twenty-one trading days
Nike stock has risen nearly 21% in 2019 so far, and is currently trading at around $90 per share. Wall Street analysts have a one-year price target of $102 for the stock. That puts it on pace for a $140 billion valuation, well above the $130 billion cap of the S&P 500 index.
Despite the recent pullback in the stock price, investors should still consider buying Nike stock. While the company is facing a lot of short-term headwinds in the form of China concerns and increasing digital sales, the company is well-positioned to achieve great success over the coming years.
Nike beat analyst estimates for 25 straight quarters
Nike has been beating analyst estimates for the past 25 quarters, and is expected to continue to do so. The sports apparel retailer recently unveiled a new ad campaign that re-energized its brand among younger consumers. This resulted in an increase in sales in September. Nevertheless, investors should be cautious when buying Nike stock, which is trading near technical support and rarely near its weekly moving average.
Nike’s fiscal first-quarter earnings topped analysts’ expectations. The company posted revenue of $46.7 billion, up 5%, while net income was up six percent. Nike beat analysts’ estimates for earnings per share by four cents. Nike benefited from growth in its North American footwear business, which helped to boost profits.
Nike’s focus on direct-to-consumer sales
Nike’s growth has been a key factor in its recent earnings, and some analysts think it’s a good time to buy shares. The company has been aggressively expanding its direct-to-consumer business, opening more brick-and-mortar retail locations and expanding its online sales channels. This initiative, which the company calls “Nike Direct,” has allowed the company to cut out middlemen retailers and broaden its customer base. It also widened Nike’s moat against competitors. NIKE Direct has been growing more rapidly than the company’s other businesses and is expected to account for 40% of its top line in fiscal 2022.
Nike’s latest earnings report shows the company continues to deliver strong financials and a strong brand, but there are several concerns that could impact its future performance. For example, the company is expected to report a lower-than-expected first-quarter gross margin, due to an increased proportion of full-price products sold through Nike Direct. In addition, the company is preparing to deal with increased freight costs and a recalibration of inventories, as well as currency headwinds.
Nike’s dominance in its industry
Nike’s latest earnings are encouraging, although it has faced challenges. Nike has seen its market share decline as more non-traditional athletic companies enter the market, such as Old Navy. Moreover, the company has a limited product lineup, focusing on athletic shoes and apparel. Michael Jordan’s departure from the company also negatively impacted Nike’s sales. It has also been criticised for its advertisements, which tend to focus on things not related to its products. Nonetheless, many analysts feel the stock will continue to rise.
Despite the recent struggles, Nike has maintained its position as the top brand in the athletic footwear industry. Sales have risen consistently since 2010, excluding the pandemic. Analysts are projecting that the company’s sales will rise by 5.8% to $47.1 billion this year. In addition, Nike is also investing heavily in direct-to-consumer sales, which helped boost its Q3 results. However, investors should keep in mind that Nike’s stock is down 19% year-to-date.
Nike’s ability to boost gross margins to “high 40s”
The company has a number of advantages over its competitors, including strong branding, excellent marketing, and a strong online business. Nike also sells its products at a premium price, resulting in an unbeatable 13% profit margin. That’s why investors have given Nike’s stock a premium valuation compared to its industry. Moreover, the company has increased its focus on digital channels, which is helping it boost its digital revenue. Therefore, investors should treat Nike as an e-commerce stock and consider Nike’s recent growth in the digital space a positive factor.
Nike’s current fiscal year’s gross margin is expected to increase 125 to 150 basis points. The company expects to boost its gross margins to “high 40s” by fiscal 2025, up from 44.8 percent in fiscal 2018. The company is also aiming to increase its revenue growth to the low double-digit range. While it’s expected to achieve this revenue growth, it will have to offset it with higher product costs. Nike expects SG&A expenses to increase between 32 percent and 33 percent.