Shares of Nike (NYSE:NKE) have been sprinting higher, giving investors a good old case of the FOMOs (fear of missing out). Hindsight is 20/20 of course, but investors had a terrific opportunity to gobble up Nike stock in late-December, right as the overall market was capitulating.
“Well duh, we had a great chance to buy almost every stock in late-December, Bret.”
Obviously most stocks were under pressure as the markets tumbled into the Christmas holiday, but NKE stock was a unique situation. That’s because the company just turned in a strong fiscal-second quarter earnings report on Thursday, Dec. 20. The market bottomed on Monday, Dec. 24, was closed the next day and started its surge on Dec. 26.
Of course the market completely ignored this common-sense rationale and slammed Nike stock lower with the rest of the Dow. But longer term investors with an ounce patience recognized the situation for what it was: A buying opportunity.
Lacing Up with Nike Stock
Last quarter, earnings of 52 cents per share came in seven cents a share ahead of expectations. Revenue of $9.37 billion topped estimates by $200 million and grew 9.6% year-over-year (YoY).
Aside from a top- and bottom- line beat, gross margins topped consensus estimates while inventories decreased YoY. Growth and margin expansion were led by Nike’s direct-to-consumer business.
Overall, it was a strong quarter for the company and that’s when investors should have been jumping all over NKE. Worth noting, the company is almost done with its four-year $12 billion share buyback plan. That means Nike will soon embark on its four-year $15 billion buyback plan.
Over the last few days, shares have been getting an extra boost. That’s as a potential trade deal between China and the U.S. is growing increasingly likely. That’s a plus for Nike, which does considerable business in China. But shares have also been on the move following an earnings and revenue beat and solid outlook from Under Armour (NYSE:UAA, NYSE:UA).
That gives Nike stock investors confidence that it’s business as usual for the king of sports apparel.
As it stands, analysts expect Nike to earn $2.65 per share this year, 11% growth from fiscal 2018. In fiscal 2020 (next year, but begins in two quarters), expectations call for 18.5% earnings growth. Further, forecasts call for 7.8% revenue growth in both years.
That’s a solid growth profile if Nike can achieve it. Even more so, if the company can accelerate its earnings growth in the significant manner that analysts currently expect, it will represent growing profitability and give investors one more reason to justify buying the stock.
Trading NKE Stock
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There’s a difference between a broken stock and a broken company. The former, like Nike in December, is a company with strong fundamentals but a stock is disarray. The latter adds fundamental turmoil to the situation.
So the question is, can Nike stock get to $100 a share? According to Oppenheimer analysts’ new price target, the answer is yes. “We have turned even more impressed with the underlying operating prowess of the company and its brand,” the analysts said, noting that margins should continue to improve.
NKE stock is coming in hot to its prior highs. As such, shares sport an RSI reading of 76 (green circle), suggesting an overbought condition. This isn’t a reason to sell the stock, but it is a consideration on waiting for a pullback and/or some consolidation.
Is it possible that Nike powers through resistance to new highs and becomes even more overbought in the short term? Of course! My thought is that we’ll eventually get a trade deal with China, but I would be surprised if don’t get some negative headlines first. Something like, “Trade Deal in Jeopardy,” or “U.S.-China Trade Talks Stall.”
That could send Nike and a host of others into a pullback and that could be our buying opportunity. As it stands, I’m waiting on Nike stock. But a trade deal coupled with a breakout over $86 could send NKE stock to $100 this year.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
