Nike's Pullback Is an Opportunity You'll Regret MissingNKE) has been one of the best performing stocks. Nike has moved higher consistently for years and performed nicely even during the Great Recession of 2008. However, it seems like Nike’s consistent run has come to an end (at least for the short-term) as the stock has pulled back almost 15% from its all-time highs.
The primary reason for Nike’s recent hiccup has been its worse-than-expected earnings report and weaker guidance. Although the company managed to surpass EPS estimates, it fell short on revenues and offered cautious EPS and revenue guidance for the next quarter.
Enduring sales growth
Nike is enduring its ascending sales momentum since the Global Financial Crisis in 2008.
Nike is the industry leader for the premium footwear market division. The company is far ahead in terms of net profit margin as compared to other players such as Adidas, Puma, Under Armour, but dropping out faintly to Lululemon. However, Nike is a much bigger company than Lululemon and investors should expect growth to slow down in the near future. This throws light on the company’s capability to lead in cost escalations and accomplish higher operational efficiency.
The company’s top-line growth is likely to be maintained in the approaching quarters and the bottom-line could grow further. Sales in the greater China region are ramping up the growth for Nike. The company’s sales in China had relished nonstop growth for four continuous quarters. On the other hand, the sales in the North America region are also displaying vigorous growth from a low of $3.2 billion - $3.7 billion each quarter from Q3 FY15 to Q3 FY16.
Furthermore, imminent orders in the greater China region surpassed all consensus prospects with a jump of 36 percent compared to a projection of 21 percent. All imminent orders are displaying strong growth with an average of 17 percent growth. The market for China is massive and the latency for imminent sales growth will be outstanding.
Nike has been aggressively buying back its own shares, which is a gesture of undervaluation and sureness on the part of Nike. The company has always relished swift sales growth throughout Olympic years. A year before the Beijing Olympics in 2008 and London Olympics in 2012, the company’s sales and bottom-line surged by a noticeable 15 percent and 26 percent, and 15 percent and 4 percent, respectively. The company will face the similar situation with robust earnings for this year and the subsequent quarters.
The recent pullback in Nike’s stock is an opportunity for long-term investors as the company has always managed to grow consistently despite short term interruptions. Given the company’s growth prospects, I am confident that the stock can reverse its downtrend and move higher very soon.
Published on May 18, 2016By Akshansh Gandhi