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Have Investors Jumped The Gun On Nike?

Mar. 05, 2018 8:25 AM ETNIKE, Inc. (NKE)12 Comments
Beulah Meriam K profile picture
Beulah Meriam K


  • Nike's position in North America continues to be under pressure from competitors like Adidas.
  • Strong international growth and a continued decline in North America could help overall growth numbers as overseas markets balance out the skew at the top line.
  • However, for current valuations to be justified, North America sales have to pick up the pace. Unfortunately, investors may have jumped the gun, before the actual recovery happens.

In a matter of a few months Nike's (NYSE:NKE) stock price has gone up considerably. In fact, after trading near its 52-week lows towards the end of 2017 the stock is now at the opposite end of the spectrum, testing highs it hasn't touched since late 2015.

The problem is, the price is now where it was before the sales decline in Nike's most important market, North America, first began. I think investors have jumped the gun before North America can show positive sales growth once again, thereby inflating share price without the fundamentals to back it up. Although international markets like China do provide a wedge against overall sales decline, the stock's current price can't be justified until North America sales show a full recovery into positive territory.

On August 25, 2017, I wrote an article here on SA arguing that the company is a global brand and not a regional one, and that international revenues have the power to pull the company out of its regional troubles and allow it to keep growing over the long term.

I concluded that article with this:

With long-term growth prospects looking positive, we're not going to see Nike trading at the 20 times earnings levels that often in the future. If you're ready for the long haul, buy Nike and hold it forever.

At the time that article was written the stock was trading at around $53. Since then it’s gone up by more than 20%, now trading near its 52-week highs rather than its 52-week lows. I want to revisit Nike’s position in light of Q2-18 performance to see if investors should wait for a pull back or if the company is still a good buy at the current price point.

My thesis in short: The market has jumped the gun

This article was written by

Beulah Meriam K profile picture
I do deep-dive analyses into the top companies in multiple segments, including retail, consumer goods and technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (12)

Stynx profile picture
I don't care where the revenue comes from as long as it gets earned.
I see North America as an anxiety issue that American investors have to get over and realize it's a big world out there.

Steve Rasher profile picture
Beulah: Another good article. NKE is getting back its stride and once again hurdling the competitive challenges before it.. It really is a technology company, just focusing on sportswear. I was fortunate to see value at $51 around a year or so ago when all the talk was about Adidas. NKE is a strong long term hold. I'm not sure I would say people jumped the gun (although I get the double entendre), that is, people have gotten in too early, although I agree people may have bid it up a too fast. Even those that have will come out OK in the long run. Steve
Good article
Beulah Meriam K profile picture
Thank you, Jay. I guess it's a good thing for those already invested in NKE, but not as great for new investors looking to initiate a position - or for existing investors to add to theirs.
I recently added to my position but with dollar cost average I increased nicely in the low $50 range.
I am holding this stock long so a price drop doesn’t really matter much
Most people in the world like a good sale, but stocks, when on sale, are one of those few things people won't run down to the stock store and buy

I can easily remember the sentiment on this stock a few months ago when it was around 50 sounding different than it does around 70, but if you had to pay this much more for a pair of Nikes now than you did 6 months ago....you would be waiting for a sale.

Anyways if you are long who cares, this company will be putting rubber on cool kids feet for a long time. Its a hold
Plextor2 profile picture
Well have you looked at AMZN or NFLX PE'S
Easily $75 with good earning release this month .Trading cheaper than UAA
Gary J is Rich on AMZN profile picture
Not exactly jumping anything when you have held a great company forever.
Colorado Wealth Management Fund profile picture
I clicked this one just to say the title was beautiful. Well done.
Beulah Meriam K profile picture
Thank you, Colorado! That means a lot coming from a highly-followed and deeply experienced author.
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