The market’s rally since the election has been spectacular, and while momentum has begun to slow a bit in recent days, each of the major indices remains near highs. The S&P 500 hit an all-time high on Dec. 13 and has been trading within a percent of it ever since. The Nasdaq hit a new high just yesterday, and the Dow Jones Industrial Average is still within sight of its 20,000 milestone.
This strength has taken stock after stock to new heights as well, but that doesn’t mean that every single one has participated in the rally. In fact, let’s talk about one that’s been left behind: Nike Inc (NYSE:NKE).
Since hitting a yearly low in November just before the election, NKE has been building a base. From a technical perspective, the action over the last six weeks has been constructive for the longer term — the stock recently moved back above its 50-day moving average, which had been acting as a ceiling — but the major negative here is that it has not joined the overall rally.
Nike reported fiscal-second-quarter results after the close on Tuesday, and a beat on both the top and bottom lines gave the shares a boost after hours that could have been the start of their next leg higher. However, the majority of those gains were given up the following morning after management announced weaker-than-expected future orders.
NKE Stock By the Numbers
Looking at the numbers, earnings of 50 cents a share bested estimates by 7 cents and grew 7% from last year’s 45 cents a share. Revenue increased 6.4% year-over-year to $8.18 billion and bested analysts’ expectations by $90 million. But the disappointment came when management said that future orders were up just 2% on a constant currency basis.
Wall Street had expected 5.2% growth.
Future orders refer to goods that have been requested by wholesale customers, but were not actually delivered in the quarter. Given Nike’s shift to the web and its branded stores, the metric is becoming less relevant. The company maintained full-year revenue forecasts for high-single-digit growth, and CFO Andy Campion said, “The key takeaway is that our revenue guidance reflects a much more comprehensive outlook for our business.”
So that puts the stock right back where it was before the results were released. The good news is that the 50-day moving average (the blue line) is providing a bit of support on the downside, but the real test comes when NKE nears the $55 area.
That’s where two points of resistance collide: the 200-day moving average (the red line) and, even more importantly, a longer-term downtrend (the black line) that is being formed by a series of lower highs since the stock peaked in December 2015.
I’m looking for a move back above that key $55 level before even considering buying because until then, we cannot classify the downtrend as over.
One other thing I’ll add is that I also don’t think the stock is overly attractive fundamentally. While Nike remains the number one athletic shoe maker in the world and continues to lead the industry, its PEG ratio is 1.85 and its dividend yield is just 1.4%. Neither is a good enough reason to buy here.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
