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Why I’m Chasing Nike at All-Time Highs

Nike

Who would have imagined Nike (NKE) as a growth stock? Thanks to its Direct-to-Consumer strategy, the global apparel and footwear giant has seemingly re-invented itself from a stable retail brand to an omni-channel powerhouse.

Who would have imagined Nike (NKE) as a growth stock? Thanks to its Direct-to-Consumer strategy, the global apparel and footwear giant has seemingly re-invented itself from a stable retail brand to an omni-channel powerhouse. But while stock valuation might now be a major hurdle for many investors, my advice is this: buy the stock, just do it!

Shares of Nike have skyrocketed as much as 16% to an all-time high of $154.59 since the company crushed Wall Street’s Q4 earnings expectations, delivering what some are calling a flawless report. The company’s direct and digital performance is what excited the investors the most. The 73% year-over-year spike in direct sales to $4.5 billion is nothing short of impressive, especially given the fact that it accounted for more than a third of Nike’s total Q4 revenue.

What’s more, the fact that Nike’s brand digital revenue was up 41% year-over-year and 147% from two years ago, underscores the impressive rate of acceleration. As you can imagine, these results helped the company to easily beat expectations with overall Q4 revenue jumping 96% from the lockdown-impacted quarter a year ago to $12.3 billion, or up 21% from Q4 2019. Just as impressive is the fact that Q4 adjusted profits skyrocketed to 93, easily beating the consensus of 51 cents per share. The reason for the strong profits beat is the result of the company’s shift to higher-margin direct sales.

In other words, not only is Nike back to operating at above pre-pandemic levels, the fact that the company beat revenue by more than $1 billion and crushed on the bottom line also shows the pricing power Nike now commands, particularly when compared to its competitors Lululemon (LULU) and Adidas (ADDYY), among others. And as a way to assert its dominance, not only did Nike guide low double-digit revenue growth this fiscal year to more than $50 billion, above estimates at $48.5 billion, the company flexed muscle by issuing guidance through fiscal 2025.

Essentially, Nike is telling its rivals, “come at us if you dare.” And that level of confidence is what investors should be focusing on. The stock is currently trading at $152 which is about 15% below the Street's consensus price target of $176. Assuming a more bullish view where some Wall Street analysts suggest a new fair value closer to $200 per share, the shares could be undervalued by almost 25%. As such, Nike stock could still be viewed as cheap despite trading near all-time highs.

And let’s not forget, even with the recent rise in share price, Nike is only up 9% year to date, trailing the 14% rise of the S&P 500 index. Until the Direct-to-Consumer business, which is generating higher profit margins, shows meaningful signs of slowing down, Nike stock will continue to run. In other words, at a stock price of $152 per share, chasing Nike stock at these levels still makes sense.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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