Upside for Nike Stock?
Nike Inc (NYSE:NKE) stock had a tremendous run in 2015. However, the momentum has weakened since entering the new year, especially after the company’s latest earnings report. In the past two weeks, Nike stock slipped more than five percent. Does that mean the bull run is over?
Not really. Here’s why Nike stock could still be a rewarding investment.
Strong Growth Prospects
If you think that Nike stock fell on earnings because of fundamentals, think again. The company’s growth has been more than solid. In the most recent quarter, Nike grew its earnings per share by an impressive 22% year-over-year to $0.55, which also beat Wall Street’s expectation of $0.49. (Source: “Nike Inc Reports Fiscal 2016 Third Quarter Results,” Nike Inc, March 22, 2016.)
Revenue was the trigger of Nike stock’s recent slip. For the quarter, the company generated $8.0 billion in revenue, slightly below analysts’ expectations of $8.2 billion. Still, Nike’s quarterly revenue represented an eight percent year-over-year improvement. On a constant currency basis, revenue would have increased 14%.
Going forward, there is good news. Nike’s global futures orders surged 12% year-over-year. Futures orders represent products scheduled for delivery from March to July. Excluding currency changes, the company’s futures orders would have been up 17%. This is an indication that sales growth could very well continue in 2016.
In the past several decades, Nike has built up a huge presence in the sport of basketball. With the iconic Air Jordan brand, Nike has become the go-to choice for basketball fans around the world. The company has also signed a lifetime contract with LeBron James, one of the most dominating players in the NBA today.
Now, Nike is about to become even more dominating on the basketball court. Starting with the 2017–2018 season, Nike will be the official on-court apparel provider for the NBA. The company will have the rights to supply jerseys, shorts, and warmup gear used by NBA teams. (Source: “Nike to Become Uniform Apparel Provider for NBA,” NBA.com, June 10, 2015.)
Note that Nike already controls more than 90% of the basketball footwear market. Becoming the official outfitter for the NBA would further solidify its leading position in the market.
Dividends and Buybacks
When a company runs a profitable operation and also becomes the industry leader, investors would expect it to return some value. On that front, Nike does not disappoint.
Nike spent around $1.5 billion to repurchase 24.3 million shares in its last fiscal quarter. This also marks the completion of the company’s four-year, $8.0-billion dollar stock buyback program.
The company is not done yet. The board has approved a new four-year, $12.0-billion share repurchase program, which has already begun after the completion of the previous one.
Nike also pays a dividend with a 1.05% yield. In the past 14 years, the company has returned more than $23.0 billion to shareholders through buybacks and dividends.
The Bottom Line on Nike Stock
There you have it. Nike stock’s recent decline is not a sign of trouble for the company. Rather, the pullback could be a great opportunity for investors who want a piece of the action in the sports apparel industry.