What’s going on with Nike Stock?

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Nike shares (NYSE:NKE), a company that designs, develops and markets footwear, apparel, gear and accessories, has gained about 28% over the past year, rising from around $128 to around $164 currently , underperforming the S&P500, which rose $34. %. Why? During the recent fiscal first quarter, the company lowered its full-year guidance due to supply chain issues that affected its factories in Vietnam and Indonesia. Covid-related shutdowns have also led to Nike losing weeks of production since July, while rail and port congestion has lengthened arrival times for goods in North America and EMEA regions. However, these issues appear to be short-term in nature and are unlikely to impact the long-term growth of the business. That said, the company presents many opportunities to continue to grow. We discuss more in the sections below.

But is that all there is to the story?

No, not quite. Despite the company’s stock market rally, Trefis believes Nike’s assessment at approximately $171 per share, 4% above the current market price based on two key opportunities.

the first the opportunity we see is Nike turnover growth. The company’s revenue increased 16% year-over-year (year-over-year) in the first quarter to $12.2 billion. The gains were fueled by strong demand, particularly in its direct and digital channels, where sales rose 28% and 29% respectively. In fact, the company saw its digital sales jump even as sales in physical stores recovered from the pandemic. That said, the direct-to-consumer channel tends to offer higher gross margins and gives the business more control over the sales process. As a result, the company’s overall margins rose 1.7 percentage points to 46.5%, contributing to a 22% growth in earnings per share to $1.16 in the first quarter. Overall, Nike also noted that more than 65% of its total sales were made at full price, exceeding the company’s target. At first glance, the company appears to be on track to meet its goal of generating 40% of its revenue from its own digital sales by 2025.

As supply chain constraints remain, Nike expects markdowns to be lower than normal for the remainder of fiscal 2022. The company even plans to raise prices in the low single digits at second half to account for part of the increase. costs in the supply chain.

the second the key opportunity stems from Nike’s valuation multiple relative to its peers. The stock now trades at a premium of 48 times its expected 2022 earnings per share of around $3.59, according to Trefis estimates. It is higher compared to its counterpart, Skecher

SKX
s, trading at 18 times forward earnings. And, we believe that NKE deserves this premium in its multiple. While Nike’s revenue has grown at a CAGR of 7% over the past three years (fiscal 2018 and 2021), SKX’s revenue has grown at a CAGR of 4% over the same period. Moreover, Nike’s profits increased by 45% during this period, while Skecher’s profits fell by 17%. That said, we also expect Nike’s revenue to grow at a steady 20% over the next two years, compared to an expected 7% revenue growth for SKX.

Our $171 price estimate for Nike derives from a P/E multiple of 47.8 and earnings per share of $3.59 in fiscal 2022. This implies a premium of approximately 4% compared to the current market price of around $164.

For a more in-depth comparison between peer groups, it is useful to see how they stack up. Comparison of NKE shares with its peers shows how Nike stacks up against its peers on important metrics. There are also several stocks in the S&P500 that look like a Better bet than NKE stocks.

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