Based in Oregon, Nike (NKE) manufactures and sells athletic shoes and other sports-related apparel. I am bullish on the stock.
Generations of sports enthusiasts have pointed to a famous brand that excels in the sports sneaker market: Nike. In fact, you don’t have to be a sports fan to recognize the Nike logo or the legions of celebrities who have endorsed the company’s shoes and other products.
On the other hand, not everyone in the investment community is convinced that Nike is a company to stake your capital on now. Nike is the perfect example of a cyclical business, meaning it does well when the economy is good and people have more money to spend. Lately, cyclical companies have been under pressure due to difficult macroeconomic conditions.
Nike’s sneakers may be all the rage, but they’re not known for being particularly cheap. Additionally, Nike stock fell under pressure in 2022, reflecting investors’ reluctance to bet on an expensive maker. Still, there are reasons to lean on Nike as the year winds down its second quarter.
A comfortable investment
After three consecutive months of annualized growth in the US Consumer Price Index (CPI) above 8%, it is undeniable that inflation is a persistent problem in America. On Main Street, consumers are feeling the pinch as they try to stretch their cash just to make ends meet. Meanwhile, Wall Street punished cyclical stocks across several sub-sectors.
Among these subsectors is sportswear, and we can see the damage that has been done to Nike’s stock. The shares were trading at $179.10 at their 52-week high, but lately have struggled to stay above the crucial $100 mark. Wherever you look, you might find some discouraging news that will make you nervous about buying falling Nike stocks.
For example, Nike announced that in July the company would remove its popular Nike Run Club app in China. No reason was given for the shutdown, but Nike said it plans to provide runners in China with an “improved, localized solution in the future.” There’s no need to worry too much about Nike’s Chinese operations, as a company spokesperson assured that Nike is “creating a China ecosystem for China, specifically tailored to the unique needs of consumers in the region. to better serve the athletes”.
To help investors stay calm, they should keep in mind that Nike has weathered economic downturns in the past. It’s a surprisingly resilient company through good times and bad. Perhaps that’s why Nike stock has a five-year monthly beta of 0.96, meaning Nike stock has moved very similarly to the S&P 500 (SPX), so it is not super volatile.
On TipRanks, NKE scores 9 out of 10 on the Smart Score spectrum. This indicates high potential for the stock to outperform the broader market.
Big event coming up
Another sign that Nike’s business is stable despite the impact of inflation is that the company continues to pay out a dividend. Currently, Nike’s projected annual dividend yield is 1.14%, which should appeal to income-oriented investors. Additionally, it should be noted that Nike’s Board of Directors recently approved a quarterly cash dividend of $0.305 per share.
If you’ve ever invested in Nike stocks, or even are thinking about it, it’s a good idea to mark this date and time on your calendar: June 27, 2022, at approximately 1:15 p.m. PT. That’s when Nike expects to release its fourth quarter fiscal 2022 financial results.
Most likely, Nike won’t knock it out of the park in its next financial report. However, business results do not have to be perfect. The important thing is that Nike demonstrates at least moderate growth and resilience in difficult economic conditions.
In the company’s previous fiscal report, Nike showed 5% year-over-year revenue growth. Additionally, Nike’s gross margin increased by 100 basis points to 46.6%. Nike Chairman and CEO John Donahoe cited “consumer connections, compelling product innovation and expanding his business.”
power play,” and assured at the time that Nike had “the right playbook to navigate volatility.”
Could Donahue have known, in March, that market and economic volatility would increase during the summer? It’s as if he somehow saw what was to come and wanted to prepare investors for turbulent financial conditions: prolonged Russian invasion of Ukraine, persistently high inflation, aggressive Reserve interest rate hikes. federal, etc.
The Taking of Wall Street
According to TipRanks analyst rating consensus, NKE is a Moderate Buy, based on 17 buy ratings and five hold ratings. Nike’s average price target is $154.14, implying an upside potential of 43.58%.
The upcoming financial report will give Nike a chance to prove it can grow even if there are macroeconomic headwinds. Investors, current and potential, should be realistic in their expectations. Nike likely won’t release general beats in its quarterly data release. As long as the results show moderate sales growth and decent margins, it’s a win for the company and its stakeholders.
At the same time, value investors should observe that Nike stock is trading well below its 52-week high, but still not excessively volatile. So, Nike stock is the kind of asset that you can keep overnight without losing sleep. So don’t hesitate to put on a pair of comfy sneakers and run to your broker while Nike shares are still trading at a steep discount.
Read full disclosure