Nike (NYSE: NKE) is a company that designs, develops, markets and sells athletic apparel, footwear, equipment, accessories, and services globally. The Oregon-based company, founded in 1964, is still growing strong today.
Nike refers to itself as a growth company, a message about its intention and attitude. Thus far, investors in NKE stock have been quite pleased by its performance. As of October 10, 2023, the company has a market cap of $150.26B.
Earnings Report Better Than Predicted
The company released its fiscal 2024 earnings report on September 28 for Q1 2024, ending August 31, 2023. Its report showed better than expected numbers. Specifically, it reported $0.94 per share earnings, up 2% year-over-year. It was also much higher than the $0.75 per share predicted by analysts. Its Q1 revenues were $12.9 billion, up 2% compared to last year’s Q1.
Its expanding digital presence and e-commerce capabilities continue to shine with NIKE Direct, contributing $5.4 billion in Q1, a 6% increase compared to the previous fiscal year. Additionally, NIKE Brand Digital sales rose 2 percent compared to last year. The report also projects bigger profit margins in the future. Additionally, its business in China is showing signs of recovery; its Greater China division reported year-over-year sales growth of 12%.
A Deep Dive into the Q1 Report
The Q1 report on Greater China growth should be taken with a grain of salt, as the division reported a 13% drop year-over-year last year due to the COVId19 lockdowns. As such, waiting for future reports to see if they represent a growth trend or a recovery of past losses is important.
A troubling figure in the report is that revenues in North America fell 1% year-over-year. That is important, as North America remains the company’s biggest market, accounting for over 40% of all its revenue. While sales were up 2%, the company had to spend $1.07 billion on marketing to make it happen. An increase of 13% year-over-year. Despite this, pre-tax income fell 10% year-over-year.
Long-Term Fundamentals Are Not Promising
Short-term NKE stock looks great; it is up 2.07% in the last month. However, the long-term fundamentals do not look great. For instance, the company’s stock is down 17% since the start of 2023. Another area worth looking at is the inventory.
The company has been working hard to clear its inventory, down to $8.70 billion from $9.66 billion a year ago, a nearly 10% decline. However, the inventory levels have risen from the previous reported quarter of $8.45 billion. These figures are unusually high compared to sales.
Another concern is that it is trading at high earnings multiples of over 25X. On paper, that is not a good deal. The average for the apparel retail sector is 13.49x, and 15.27x for the apparel manufacturing sector.
NKE Stock Outlook
Wall Street analysts give NKE stock a moderate buy consensus. Its average stock price target is $119.48. Given its current price of $98.75 as of October 10, 2023, 11:59 AM EDT, that is a 21.06% upside potential.
Should You Buy Nike Stock?
Despite the fundamentals not looking great, Nike still has a few things working for it. One of them is the huge brand recognition. Its swoosh logo and name are easily among the most recognizable in the sports apparel and shoe industries. Additionally, its market share is huge. However, management still has a few things that must be sorted out. For those looking into entering the stock market with NKE, it might be worth waiting on the sidelines to see how the fundamentals are handled.
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