Nike (NKE -0.86% ) didn’t get the start of 2022 he was hoping for. Production restrictions and woes in China have affected the company’s finances in recent quarters. As a result, shares of the sportswear juggernaut have fallen around 18% since the start of the year, far more than the S&P500which fell about 6.6% over the same period.
The latest pullback in Nike’s stock price has created a great window of opportunity for investors to pick up shares of one of the world’s leading companies at a discount. It’s likely that stocks could continue to face downward pressure for the foreseeable future, but the current headwinds are largely short-term in nature. As Nike ramps up its digital sales and concerns in China finally ease, the company is well-equipped to generate great success in the years to come.
The power of Nike is consistency
Never underestimate the power of a brand. The Nike brand allows the retailer to consistently generate strong finances. Even during a time when it is facing temporary pandemic-related factory shutdowns and concerns about sales in China, the company continues to deliver to its shareholders. In its third quarter of fiscal 2022 (which ended Feb. 28), Nike reported revenue of $10.9 billion and earnings of $0.87 per share, topping Wall Street estimates of 3% and 21%, respectively.
The outperformance comes even after quarterly sales in China fell 8% year-over-year. Investors should be optimistic about Nike’s future in Asia. Management indicated in its previous earnings call that it expects sequential improvement in Greater China in the fourth quarter. The company’s below-average third-quarter revenue in China was offset by robust digital sales, which grew 22% year-over-year, primarily driven by 33% growth in North America.
Nike’s performance in the third quarter showed the company’s ability to manage volatility and handle headwinds effectively. In today’s uncertain market, Nike offers investors reliability with solid upside potential.
Investors can expect another successful year from Nike in fiscal year 2022 (which ends May 31). Analysts’ consensus forecast calls for annual revenue of $46.9 billion and EPS of $3.74, translating to 5% growth for both metrics. These results may not seem staggering, but they are impressive given the company’s 2021 comparables. 2021) increased by 19% and 92%, respectively. Therefore, Nike’s ability to increase both revenue and bottom line in the coming year would be a commendable achievement.
Nike has an increasingly attractive valuation
The most recent decline in the company’s stock price caught my attention. Nike today trades at 35 times earnings, below the company’s five-year average price-earnings (P/E) multiple of 43. It was trading above its historical average at the start of the year. , but the P/E quickly contracted, leading me to believe that now is a good time to buy stocks.
Analysts are modeling Nike’s EPS to hit $6.20 by fiscal year 2025, meaning it’s trading at just 22 times consensus estimates for that year. That sounds awfully cheap for one of the most successful companies in the world. It also reveals the beauty of long-term investing and how an extended time horizon can help us get a better perspective on the value of stock prices today.
Consider Nike stock at these levels
The company has all the tools available to maintain stable success over the long term, while developing a broad avenue for growth. Investors should take note of its recent pullback: Nike is now trading below its five-year average P/E multiple and may continue to linger at those levels for some time.
Nike offers investors a triple threat with healthy finances, an attractive valuation and an unmatched brand image. That’s what appeals to me today, and I think other investors should tune in as well.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.