The stronger dollar weighs on Nike Inc (NYSE:NKE) as much as any other multinational, but the market gave it a pass Friday, sending Nike stock up sharply after earnings.
That’s what happens when you’re as hot as any brand on the planet.
The stronger dollar hit Nike sales, especially in Europe, during the quarter, and the forecast wasn’t all that good either. The number the market cares most about when it comes to NKE is orders for future delivery, and that was surprisingly soft due to the strength of the greenback.
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But for a day, at least, investors applauded NKE’s ability to shrug off a stronger dollar thanks to robust demand.
Indeed, indications are that this massive brand is only getting bigger and more entrenched. NKE is the Apple Inc. (NASDAQ:AAPL) of athletic footwear and apparel.
NKE’s premium position makes its stock command a premium valuation, but not necessarily one so pricey to scare away new money. True, Nike stock goes for 25 times forward earnings, which is significantly more expensive than its five-year average of 20. It’s also more expensive than the broader market.
However, with a long-term growth forecast of 12%, NKE has much better prospects than the S&P 500. The valuation isn’t a bargain, but it’s not so out of whack that NKE is doomed to underperform — especially when it’s able to produce such growth in a tough currency environment.
Lastly, NKE stock — a component of the Dow Jones Industrial Average — has a tailwind of technical strength.
Click to Enlarge NKE broke past $100 a share to notch an all-time high after its earnings report. That has the stock trading well above its 50-day and 200-day moving averages. (The 50-day has been a bastion of support ever since NKE carved out a golden cross last summer.)
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Sure, technical analysis might be voodoo, but if enough market participants believe in it, it can become a self-fulfilling prophecy. Besides, it’s not like NKE bulls have no fundamental strengths to point to, as well.
Orders for future delivery rose a tepid 2% because of unfavorable currency exchange, but stripping out the effects of a strong dollar reveals tremendous demand for NKE goods. Indeed, on that basis, future orders rose 11% despite tough comparisons to a year-ago quarter that benefitted from the World Cup.
Moreover, even after currency exchange sliced 11 percentage points off sales growth in Western Europe, the top-line there still increased 10%.
From future orders to sales, these are remarkable numbers for a company as large as NKE. The market loves that, as it does expanding gross margin, which went to 45.9% from 44.5% — a huge move for such a metric.
NKE stock might cool off for a session after having such a big day on earnings, but sales and margin strength make it look good for plenty more upside in 2015.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
