Nike Inc. (NKE) sprinted through its most recent quarter but concern that the company could be getting winded sent Nike stock stumbling to end the week despite a strong earnings report.
Long-term holders of Nike stock have seen this show before, so they know the deal. For anyone new to Nike stock, here’s what’s going on: It doesn’t really matter if NKE kills Wall Street’s profit and sales estimates if it doesn’t also beat expectations for global orders for future delivery.
Fair enough. There’s a pretty big lag between orders for footwear and apparel coming in and product going out, so futures orders are a good indicator of demand and future sales growth. Anytime NKE misses of disappoints on this figure, Nike stock takes a hit.
And then — if you wait long enough — Nike invariably bounces back.
It’s not that you can’t chart periods of underperformance for Nike stock, it’s just that they don’t tend to last very long. Nike stock lagged the S&P 500 for much of 2014 on the very same growth-and-margin worries that resurfaced in the most recent report — and now it’s poised to close the year with outstanding gains.
As of Thursday’s close, Nike stock was up 24% for the year-to-date, versus a 14% gain for the broader market. Chart Nike stock over any standard time frame and it has destroyed the market.
Nike Stock Still a Forever Holding
Great brands withstand the march of time. Once you build a reputation for quality and loyalty, it takes a hell of a lot to alienate consumers or the market. That’s why we picked Nike stock as one of the 10 best stocks to buy for the next 10 years.
There’s nothing in the latest earnings report to suggest that NKE is losing relevance. Indeed, the market for what NKE sells is a rare bright spot in an otherwise sluggish industry.
Sales of athletic wear grew 7% in 2012 and another 13% last year, according to market researcher NPD Group. Take those athletic and footwear sales out of the mix, and total apparel sales actually declined over the last two years.
NKE might just be lowballing Wall Street on estimates, but it does have plenty of good reasons to be cautious. It’s facing tough comparisons coming up against a year fueled by the World Cup. The dollar keeps getting stronger, which makes U.S. products more expensive overseas. And it faces worsening economic conditions in Japan, Europe and some of the bigger emerging markets (cough, Russia).
Nike stock was bound to dip after then market found a blemish in its most recent earnings report. Don’t forget — it was up 24% for the year.
But we’re talking a blemish, here, not skin disease. Nike stock remains a core long-term holding.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
