Nike (NKE) has delivered solid earnings and stock performance over the past 18 months as analysts tout its strategy and products. But is Nike stock a buy right now? It’s the longtime king of sportswear, dwarfing Adidas (ADDYY), upstart Under Armour (UAA) and yogawear specialist Lululemon Athletica (LULU). Time to take a close look at NKE stock technicals and fundamentals.
Nike is focusing on innovation and digital transformation. It has seen solid international growth, with Nike efforts in China a highlight. Its Nike Direct business has also been performing well.
However in the latest Nike earnings report, the company missed some fiscal Q3 estimates for the key North American market. It also gave cautious revenue guidance.
Nike Stock Analysis
Nike stock has been finding support at its 50-day line, a key technical benchmark. It’s not far from its March 19 record high of 88.59.
Nike stock broke out from a 22-week cup with handle with an 85.88 buy point on Jan. 23, MarketSmith analysis shows. However, NKE stock round-tripped a 9% gain following its Q3 report. That suggests investors should wait for a fresh base to form.
A key component of a winning stock is a strong relative strength line. Here the Dow Jones stock gives mixed signals. The RS line has been edging lower since the start of March, signaling Nike stock’s near-term underperformance vs. the S&P 500. Further back, the RS line has been trending higher since October 2017, amid improving fundamentals. But the RS line, the blue line in the charts, remains off its early 2016 peak.
Nike Earnings Growth Stalls
Nike stock holds a good-not-great IBD Composite Rating of 89. The Stock Checkup Tool shows EPS growth averaging 10% over the last three quarters and 5% over the last three years. The latter figure outdoes the sales growth rate over the same period of 6%.
That modest growth pace is OK for a big-cap giant in a mature, competitive market, but investors generally should look for companies with earnings and revenue growth of 25% or more.
Nike has been going in the opposite direction. In the latest quarter, Nike earnings slightly topped views but were flat vs. a year earlier. That’s the second straight quarter of decelerating growth as comparisons get tougher. Analysts forecast a 3% dip in the current fiscal Q4. Sales growth slowed to 7% in Q3, with North America revenue falling short and the apparel giant guiding low on future sales.
However, for fiscal 2020, analysts see Nike earnings growth rebounding to a respectable 19%.
Lululemon Earnings Stand Out
However, Lululemon stock boasts five straight quarters of earnings growth ranging from 33% to 82%. Lululemon sales growth hit 26% in the latest quarter, the best gain in years.
Lululemon stock, which is on IBD Leaderboard, gapped out on its latest earnings report. It’s consolidating at record highs slightly above the 5% chase zone.
Another key component of the CAN SLIM investing jigsaw is institutional ownership. Nike stock boasts five consecutive quarters of accumulation by big fund managers. One notable backer is the Fidelity Contrafund, which holds 5.2 million shares. Institutional shareholders hold just over 35% of Nike stock.
Analysts Back Nike Stock
Wedbush Securities analyst Christopher Svezia rates NKE stock as outperform with a 96 price target.
He has touted the firm’s strong push into the mid-tier footwear channel in 2019 as a growth opportunity. He said Nike is “fast-tracking refreshed new collections of more distinct merchandise” under the $100 price point. This channel has been driving strong growth for Adidas and Puma, as well as Vans.
Moving into this price segment “represents a strategic offense against its competitors, including Adidas and Under Armour,” Svezia said in a research note.
Telsey senior managing director Joe Feldman also holds an outperform on Nike stock with a 95 price target.
“Nike’s accelerated product innovation continues to drive momentum for the brand across all geographies. In addition, more full-price selling and the shift to digital remain meaningful drivers of gross margin expansion,” he said in a research note. “Looking to FY20 and beyond, the product pipeline remains strong and new innovations in core footwear, running cushioning, women’s, and apparel, along with digital growth, give us confidence that the momentum can be sustained.”
Nike Stock Is Not A Buy
Bottom line: It’s not a good time to buy Nike stock. Shares are near a record high but has not formed a new base yet.
The Dow Jones stock is worth watching, especially if sets up again with a proper buy point.
But up-and-down earnings and sales trends suggest uneven Nike stock gains over time. NKE stock could rally over the coming year and even outpace the S&P 500 index, but will it be a true market leader like Lululemon?
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