June 30, 2021
4 minutes to read
This story originally appeared on MarketBeat
Nike (NYSE: NKE) looked serious on Friday. With an exceptional quarterly performance, the stock rose 15.5% to reach a new record in more than six times the average volume.
The big jump propelled Nike into the back of the Dow-30 pack in 2021 and helped the index achieve a return of 13.5% year-to-date. It was a categorical reminder that investors should never exclude the sneaker and clothing giant from the race.
By investing, it’s a marathon rather than a sprint. So, despite the recent rally, Nike could have a lot more in the tank. If history repeats itself, the stock might simply heat up for another long run.
What did Nike report for the fourth quarter of fiscal 2021?
Say Nike’s fourth quarter results were sky-high can even be an understatement. Earnings per share were $ 0.93 versus consensus expectations of $ 0.51. The company also broke revenue by a mile which nearly doubled to $ 12.3 billion.
The most exciting aspect of the revenue performance is that direct sales increased 73% and accounted for over a third of overall sales. It has shown that Nike’s investments in its retail and direct-to-consumer (DTC) digital channels are paying off.
Another highlight was the rebound in growth in all major geographies. Sales in the all-important Chinese market jumped 17% and North America continued to post a strong recovery.
Better yet, Nike’s gross margin increased 850 basis points to 45.8% thanks to the strong increase in high-margin digital sales and lower inventory reserves. You just couldn’t have dreamed of a better performance to end the year.
Nike didn’t stop there. Management continued to impress the market with an optimistic outlook for fiscal 2022. It said it expects annual revenue of $ 50 billion from the strength of its digital platform. booming.
What are Nike’s growth drivers?
At its core, Nike will continue to derive its growth from its incredibly powerful brand name. The globally recognized swoosh logo is a money making machine that keeps launching new products. Consumers are not shy about paying extra for Nike clothing and footwear, so the company is able to raise prices almost at will.
As we learned in fiscal 2021, Nike’s primary growth driver is its DTC channel. The pandemic has accelerated our affinity for online shopping, and Nike’s website is seeing a ton of traffic. Continued investments in technology and personalization as well as in company-owned stores should help Nike build even stronger ties with its consumer base.
The days when Nike relied on its huge shopping mall retail network are drawing to a close. Soon it will become a first digital company. This is where consumers are heading and Nike is right by their side. By 2025, Nike Direct activity is expected to represent 60% of global sales.
Beyond the DTC channel, Nike will continue to assert its market leadership to find growth in rapidly growing developing countries in Asia, Europe, Latin America, the Middle East and Africa. China will be the key market one to watch as it represents around 20% of overall revenue and is Nike’s fastest growing business.
Is Nike Stock Still a Buy?
The pullback is surely 20-20 on this one, but you can still imagine a higher Nike trend. The last time daily volume broke the 40 million mark (June 2017), the stock widened and climbed another 22% over the next 12 months. It then rose again in June 2019 en route to another post-benefit run. So if you think history has a way of repeating itself, the June 2021 gap bodes well.
In terms of valuation, Nike is reasonably valued. He is targeting 37 times future profits, which is well above the peer group average. However, the title certainly deserves a premium multiple because of its growth profile. It fits the mold of a fairly well-regarded, blue-chip growth company.
In the wake of Nike’s quarterly report and outlook, sell-side analysts were quick to increase their target prices and the vast majority maintained “buy” ratings. A few of the targets are in the $ 200 and up range, while others suggest a more modest hike.
A strong possibility in the coming months is that Nike will enact another two-for-one stock split. It has done this six times dating back to October 1990. The most recent was December 2015, and with Nike’s stock price on a similar trajectory since then, a split is overdue. This means that investors who prefer to overcome the psychological hurdle of a low-priced stock might have the chance to buy at an adjusted price of $ 70 to $ 80 per share.
Whether you buy now or are waiting for a potential split, jumping to current levels is a winning trade if you are a long-term investor. Few companies are as fit as Nike. Expect more championship-caliber returns to come.
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