Nike Stock Price Up 4% Today – Time to Buy NKE Stock?

Nike (NKE) stock was trading almost 4% higher in US premarket price action today. The stock is up 11% for the year and is underperforming the S&P 500.

Nike stock is down 12.3% from its 52-week highs and is in a correction zone having fallen more than 10% from the recent highs. What’s the forecast for NKE stock and is it a good buy for December 2021?

Nike released fiscal second-quarter earnings

Nike released its fiscal second-quarter 2022 earnings yesterday after the markets closed. It reported revenues of $11.36 billion in the quarter which was 1% higher than the corresponding period last year. The revenues were flat on a currency-neutral basis but were ahead of the $11.25 billion that analysts were expecting. Nike’s adjusted EPS of 83 cents was also ahead of the 63 cents that analysts were expecting.

The company is focusing on e-commerce and its online sales increased 12% YoY in the quarter. The strong e-commerce sales were driven by a 40% rise in North America sales. While Nike’s sales in Greater China fell in the quarter, it was offset by strong growth in North America. The company is battling with supply chain issues as its plants in Vietnam were closed due to the COVID-19 pandemic. However, thanks to the in-transit inventory in North America, it was able to satiate demand in the region.

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NKE reported higher direct sales

Nike is also trying to tilt its sales mix towards direct sales instead of wholesale. In the second quarter, its direct sales increased while the wholesale sales dropped. The higher percentage of direct sales was among the reasons its gross margins expanded to 280 basis points to 45.9% in the quarter.

Commenting on the earnings, Matt Friend, Nike’s CFO said “Our second quarter results reflect our deep consumer connections, the continued strength of our brands and strong marketplace demand.” He added, “As we navigate through short-term supply challenges, we are focused on executing our Consumer Direct Acceleration strategy to fuel our long-term financial outlook.”

Nike has a strong balance sheet

Nike repurchased $968 million worth of its shares in the quarter as part of a four-year repurchase program announced in 2018. The company generated healthy free cash flows in the quarter and ended the period with a cash of $15.1 billion.

Nike is also focusing on metaverse. During the quarter, it launched the 3D immersive world of NIKELAND on the online gaming platform Roblox. It also acquired virtual sneaker company RTFKT in the quarter.

NKE stock forecast

Looking at the consolidated ratings, Wall Street analysts have a bullish forecast for Nike stock. Of the 31 analysts covering NKE, 24 rate it as a buy or equivalent while five rate it as a hold. Two analysts have a sell rating on the stock. NKE stock has a median target price of $185 which is a 17.4% upside over current prices. Its street high target price is $206 which is a premium of 31.1% over current prices. The stock trades slightly below its street low target price of $154.

NKE stock long term forecast

Nike is battling supply chain issues in the short term which would eventually abate. It expects the recovery to start in Greater China in the next quarter and sees the recovery strengthening next year. The company maintained its full-year guidance of mid to single-digit revenue growth in the full fiscal year. John Donahoe, NKE’s CEO sounded upbeat on the long-term forecast and said “we are now in a much stronger competitive position today than we were 18 months ago.”

The company has been pivoting towards e-commerce operations which would help it improve the margins in the medium to long term. Along with the recovery in North America, NKE would also benefit from growing sales in emerging markets like China. However, like other US companies, it faces the risk of boycott calls in China.

Nike stock technical analysis

Nike stock has been in a short-term downtrend and trades above all key moving averages like the 30-day, 50-day, and 100-day SMA (simple moving average). The stock however trades above the 200-day SMA which has been a strong support zone for the stock. Its 12,26 MACD (moving average convergence divergence) also gives a sell signal. However, its 14-day RSI (relative strength index) has fallen to 30 which is at the borderline of being oversold. RSI values below 30 signal oversold positions while values above 70 signal overbought positions.

Should you buy NKE stock?

The demand environment for Nike looks strong, at least for now. Evercore ISI also reiterated similar views while maintaining its overweight rating yesterday. It said, “The good news is that demand is not Nike’s issue (at least until this Omicron spread), and all signs point to the continuation of the strong sneaker and casualization trend well into 2022.”

The company’s focus on metaverse could be another long-term driver. Companies like Facebook see metaverse as a big opportunity and Nike is trying to get an early mover advantage in the industry.

From a valuation perspective, NKE stock trades at an NTM (next-12 months) PE multiple of 42.4x which is higher than its long-term averages. However, the valuations appear elevated amid the short-term earnings compression. As the supply chain pressures ease and Nike continues to pivot towards direct sales and e-commerce, its margins and earnings would rise.

Overall, Nike looks like a good stock to buy. It is among the most valuable brands globally and looks attractive after the recent fall from its peaks.

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