Is Nike in Danger?NKE) has a habit of proving the bears wrong. Bears have been arguing that Nike is overvalued, however the company has been beating growth estimates consistently. Nike has been an ideal stock for long-term investors over the years and I think it still has a lot of juice left. Despite the concerns about Nike’s valuation, I think the stock is a buy at present levels.
Marvellous growth ahead
2015 was a fruitful year for Nike, as the stock surged almost 15 percent. Fitness is rapidly becoming a standard in Chinese day to day life as more population enters the middle class.
Instead of high sneaker costs, customers are willing to buy sneakers especially basketball shoes. Basketball sneakers are becoming popular day by day in the athletic world and have propelled the achievements of players like Michael Jordan and LeBron James.
According to Nike’s latest earning result, it appears that the company’s future growth will arrive from Asia. On the other hand, the company’s sales in China and Japan surged 23 percent and 60 percent respectively. Nike is more focused on China, as it accounts for multiple catalysts and enormous market size. Apart from this, fitness is becoming a significant part of China as more people focus on their health.
Nike observed escalating passion for sport in China that resulted in a robust demand for the company’s products. Furthermore, NBA has been another positive sales catalyst. As per NBA forecast, around 300 million people in China play basketball. The company has belligerently been pursuing international growth, and given the potential of the market, I think it can continue expanding its wings in the region.
One of the most important things is that Kobe Bryant is backed by Nike, and supplements marvellous brand value to the company’s hard work in China. Bryant is retiring, but he could possibly spend time in China as a representative for the NBA and carry on to surge the value of the Nike brand.
Moreover, there are many other tailwinds for Nike in China. China is swiftly growing its middle class and making fitness a vital component of day to day life. There seems to be an optimistic correlation among the fitness and financial solidity, as the growing middles class plays a significant role. Hence, Nike’s early move to capitalize on this growth will prove to be beneficial in the long run.
Nike has been a winner and it will continue to be a winner. While bears may argue about the company’s valuation, I think the stock is perfectly priced and offers a lot of upside potential in the long run.
Published on Apr 12, 2016By Akshansh Gandhi