Nike Inc. (NYSE: NKE)
Nike is a top dog in the apparel, athleisure and footwear market and is an American multinational corporation that possesses a powerful brand associated with a winning mentality. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area. Nike's intense focus in recent years on building out its digital footprint is already paying off and is part of the reason that the company has seen an increase in mentions by 116% over the last day. This has encouraged investors to wonder what makes Nike so highly hyped. Currently, Nike shares are trading at $104.32.
Positive Hype
There aren't a lot of stocks that still look healthy despite the recent economic situations. However, Nike has managed to remain one of them. Here are a few reasons why it might be the perfect time to consider taking a position in the company.
Nike's P/E ratio today of 27 is well below the company's trailing five-year average, making the stock an easy investment to make amid the market turmoil. Nike has seen its stock price fall 39% this year.
In addition, the company’s price-to-free-cash-flow ratio is 35, which is another indicator that the stock is at the lower end of valuation in the last 5 years.
Nike is focusing on direct-to-consumer sales which could boost gross profit margins in the long run. In Nike's fourth-quarter conference call, management noted that since implementing this strategy shift, its gross profit margins are 360 basis points higher.
To provide context, Nike's gross profit margin averaged 44.6% in the last decade, so a 3.6% increase is a meaningful sum.
Following the 4.4% sales decrease in 2020, as a result of the pandemic, sales increased by 19.1% in 2021. The momentum continued in its recently completed fiscal 2022, in which revenue increased by 5%.
Over the last year, Nike spent more aggressively on stock buybacks and dividend payments, but cash holdings were still ample at $13 billion. That's plenty of money to raise the dividend from it’s current 1.2%, which it's done for 20 consecutive years, and fund share repurchases.
Nike has also beat the analyst bottom-line estimates by 11% in their fourth-quarter report, showing strong execution in the face of serious headwinds.
On average, analysts expect Nike's earnings-per-share (EPS) will grow by an average of 13% annually over the next three to five years, right on target with the company's 12% rate from the past decade.
Negative Hype
Before pulling the trigger on an investment, it’s imperative you consider the negatives. Here are a couple of reasons to avoid picking up any shares of Iron Mountain.
Pandemic-related restrictions in China, Nike's fastest-growing market, have hampered sales growth in the country.
Supply chain and inventory challenges, factors that have been affecting many other companies across the world have also affected Nike. The company revealed a large inventory spike that had investors worried about the potential for write-down charges or price cuts ahead. However, this is a temporary issue and poses no threat to long-term growth.
There is still the threat of a looming recession, where consumers might hold off on discretionary purchases which might negatively affect Nike’s ability to achieve its sales and revenue goals.
Conclusion
Although things aren’t looking very bright for the economy in the immediate scenario, Nike has overcome recent challenges and has the solid foundation to propel itself into a future of growth. Nike's brand recognition primarily drives its long-term success and with the recent fall in valuation, this is the perfect time to pick the stock up. If you’d like to receive more trending stocks direct to your inbox, check out our premium plans. Alternatively, if you want to learn more about the services offered by HypeIndex, check out our FAQ page.
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