Shares of Nike (NYSE:NKE) have been red hot for the past year and a half, rallying roughly 80% from their $50 lows in late 2017, to fresh all-time highs around $90 just a few weeks ago. But Nike stock is pulling back in early May, amid a stock-market selloff sparked by renewed trade war threats.
As of this writing, Nike stock is 7% off its recent highs, marking the biggest drop in NKE stock in 2019.
Investors should perceive the recent weakness of Nike stock as a buying opportunity.
In general, Nike is firing on all cylinders and extending its leadership position in an athletic-apparel market that has been, still is, and will remain on fire. This favorable positioning sets NKE up to report healthy, robust revenue and profit growth for the foreseeable future. As a result, Nike stock will stay on a healthy medium to long-term uptrend.
Further, with respect to the near-term, NKE has a few major fundamental catalysts on the horizon which should get many investors to buy Nike stock soon.
All in all, it won’t be long before Nike stock is making new all time highs. Consequently, NKE stock should be bought on its recent weakness.
The Athletic Apparel Space Remains Red Hot
There are five reasons to buy the dip of Nike stock in May. The first of those five reasons is that athletic apparel remains as hot and in-demand as ever.
Adidas (OTCMKTS:ADDYY) just reported another stellar quarter which dazzled investors and sent that stock up to all-time highs. Lululemon (NASDAQ:LULU) has been on fire for a long time and has only improved in recent quarters. Under Armour (NYSE:UAA) just reported its best numbers in recent memory, including a 25% sales jump in the Asia-Pacific region.
Everywhere you look, athletic apparel is still on fire. Nike is the unchallenged king of this space. As a result, as long as the athletic-apparel industry remains red hot, so will Nike.
NKE Hasn’t Experienced Any Trouble in China
The second big reason to buy Nike stock on weakness is that the company has proven largely resilient to trade-war noise.
Specifically, in late 2018, many U.S. companies, including Apple (NASDAQ:AAPL), reported that their China businesses had weakened thanks to slowing economic conditions sparked by the trade conflict. Nike was not one of those companies. Instead, Nike’s China business remained healthy and vigorous. Throughout all of fiscal 2018, NKE’s China sales rose 18%. Its China sales rose 20% in the first quarter of 2019, 31% in Q2, and 24% in Q3.
In other words, Nike’s China business has yet to be negatively impacted by trade-war issues or the slowing Chinese economy. Consequently, the current weakness of Nike stock seems overstated.
Tiger Woods Is Back
The third big reason to buy Nike stock on weakness is that the company’s golf business will get a nice bump this quarter and perhaps for the foreseeable future.
That’s because Nike golf star Tiger Woods is back. In mid-April, Tiger Woods won the 2019 Masters golf tournament for the first time in 14 years, completing what many are calling one of the greatest comeback stories in sports history. That comeback story caused certain Nike golf apparel to sell out on Nike’s website in the 24 hours after Woods’ victory.
Nike’s quarterly results should reflect the rebound of its golf business sparked by Woods’ victory. As long as Woods remains relevant, this lift should persist.
The Freak Shoe Launches Soon
The fourth (and arguably the biggest) reason to buy Nike stock in May is that this company is heading into what looks to be a massive signature basketball shoe launch, and prior successful signature basketball shoe launches have sparked huge rallies by NKE stock.
Specifically, Nike is set to release a signature basketball shoe for NBA superstar Giannis Antetokounmpo within the next few weeks. The shoe, dubbed The Freak 1, will likely debut to enormous demand, considering Giannis is widely loved by fans, is one of the best players in the NBA, and has a unique underdog story which consumers will strongly relate to. Furthermore, prior signature basketball shoe launches by NBA stars Kyrie Irving and Paul George sparked big multi-quarter rallies of Nike stock.
The same thing should happen this time around. The Freak 1 will launch in May. Demand will be robust. NKE will sell a ton of basketball shoes. The numbers will improve, causing NKE stock to head higher.
Women’s Pivot Unlocks Enormous Long-Term Potential
The last big reason to buy Nike stock on weakness is that this company is only scratching the surface of its long-term potential in the women’s athletic-apparel business.
At the current moment, Nike’s revenues are dominated by the men’s segment. The women’s business accounts for less than a quarter of its total revenues. But the global women’s athletic apparel and footwear market is 50% larger than the men’s athletic apparel and footwear market. Nike knows that, understands the huge potential of its women’s business, and is doing everything possible to grow its women’s business, with management calling it a “huge priority” on the company’s last earnings call.
I think the revenue of Nike’s women’s business can reach $20 billion-plus over the next several years, and that’s enough to enable Nike stock to march towards $100 this year.
The Bottom Line on NKE Stock
Nike stock is tumbling against the backdrop of the stock market selloff. But the recent weakness of Nike stock is nothing more than a buying opportunity. Over the long-term, NKE has all the pieces it needs to generate healthy revenue and profit growth. In the near-term, NKE has some major catalysts on the horizon which could turn this selloff into a rally rather quickly.
It won’t be long before Nike stock is printing fresh, all-time highs again.
As of this writing, Luke Lango was long NKE, LULU, and AAPL.