Andrea Verdelli
Following a plunge of about 15% after its 1Q23 results and having been down more than 50% since the all time highs, I think that it is time to keep Nike (NYSE:NKE) on our investment watchlist
Nike: No Running Away From Its China And Inventory Problems
Summary
- The 1Q23 results showed strength in the revenues and earnings per share numbers while gross margins disappointed.
- China remains a difficult market to operate in with the tough covid policies, but while management has been executing well in the region, major uncertainties loom for the China business.
- North America has its own elevated inventory positions as a result of mistiming issues. This elevated inventory position brings greater uncertainties if the macroeconomic environment sours.
- Management brought down guidance, although not yet reflecting any weakening of consumer demand, as it reflects lower revenues and gross margins for the rest of FY2023.
- While I remain positive on Nike in the long term, short-term risks remain not priced in. My 1-year target price is $94, implying 8% upside from current levels.
Simple Investing is a former hedge fund and long-only portfolio manager with a track record for outperformance. He managed more than $1 billion in AUM, and is a CFA charter holder who holds degrees in Finance and Accounting. He runs the Investing Group Outperforming the Market.
While having a pure growth or pure value portfolio may do well in certain markets, it leaves investors vulnerable to certain investment styles going out of favor. The objective of Outperforming the Market is to outperform the S&P 500 across market cycles. This is achieved through The Barbell Portfolio, which is comprised of high conviction growth and contrarian stocks.
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