Just Do It (Again): Nike Earnings Power Through Estimates

Yes, it seems global growth is more lackluster than anticipated.

Just Do It (Again): Nike Earnings Power Through EstimatesBut you couldn’t tell by Nike’s (NKE) recent numbers. Nike earnings blew through estimates once again.

This is a shining example that strong consumer stocks aren’t feeling the pain of a slow global economy. While steel and oil and copper may be floundering, that isn’t stopping consumers from buying their piece of the good life.

The macro story doesn’t tell the whole picture. Economies may be trudging along, but growing middle classes still have some buying power. And while they may not be buying cars and jewelry, they are buying name-brand goods.

NKE just announced its fiscal Q1 2016 numbers on Thursday. Nike earnings rose $1.34 a share, trumping Street estimates of $1.19 per share. China growth was up 22%; 27% excluding currency adjustments. Analysts expected about 15% growth.

And best of all, margins continue to rise — to 47.5% from 46.6%. That is impressive. It means NKE was able to raise prices and sell more goods than it has previously, even in this challenging climate.

And the strong growth was global: 9% in the U.S., 14% in Western Europe and 26% in central Europe — excluding currency changes, of course.

Nike also continued its $8 billion share buyback program it started in 2012. It purchased another $588 million worth of shares in the past quarter, leaving another $1.5 billion to finish the program.

Don’t Downplay Nike’s Stellar Growth

NKE stock is up 40% in the past year, and almost 20% year-to-date. That’s pretty stellar growth for a $98 billion company.

Of course, analysts seem to be downplaying the report by saying NKE’s great results are even better news for its competitor Under Armour (UA). The reasoning is the UA doesn’t have the international presence of NKE, and that gives it much more growth potential.

But no one talks about the fact that UA is 20% the size (by market cap) of NKE and has performed just about as well as NKE in the past year. And it trades at more than 110 times earnings, whereas NKE is trading at a P/E that’s around 30.

So we’re supposed to more excited about a smaller company that’s trading at almost four times its growth rate and is just starting to expand into foreign markets, than we are a major global status brand that is proving its ability to grow even in a tough global economy and is trading around its real growth rate?

This is why it pays to look at the numbers and don’t listen to the hype. Buying an athletic apparel company with a triple-digit P/E that has yet to prove itself outside the North American market is like buying triple-digit-P/E dot-com stocks in 2000.

Just to remind you, if you weren’t there. Juniper Networks (JNPR), a high-performance networking company, was selling for $232 in late 2000. About a year later it was selling for $9 a share. Today, the stock is trading around $25.

Bottom Line

Quality will out. And I would argue that the reason Under Armour is so highly valued is because of the strength Nike brings to the sector. Picking NKE stock is too easy, too obvious for these analysts. They’re selling a story, not the stock.

I say, let them have their fun. I’ll take NKE any day; and I’ll get it for a great price. And a 1.58% dividend to boot.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3-to-1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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