Stocks can go up or down for many reasons that don’t always reflect a business’s actual performance. Conversely, even an economic reason that explains why a market sector might struggle can highlight outstanding companies that find ways to succeed no matter what.
In the case of one globally recognized brand, a steeply discounted stock price belies its long-term potential, giving value investors and contrarians a cheap pick-up with more upside possibilities than downside.
A Consumer Favorite at Home in Any Portfolio
NIKE, Inc. (NKE) is a $200 billion footwear and accessories conglomerate primarily engaged in the business of designing, manufacturing, and marketing of footwear, apparel, equipment, and more.
It is the largest supplier of athletic shoes and clothing apparel globally and one of the most recognizable brands on every continent.
The company reported an impressive earnings beat on Monday for the third quarter at $0.87 per share versus the analysts’ consensus of $0.71 per share.
Group revenues climbed 5% to $10.87 billion on higher-than-expected demand. Management implied they would likely raise annual guidance when forth-quarter earnings are released later in June.
The earnings beat is just the tip of the potential catalysts that could drive the stock price higher. Demand for its product far exceeds what the current supply chain can deliver, helping to drive prices and profits upwards.
Bernstein initiated coverage of the stock earlier this month with an “outperform” recommendation and a $160 per share price target as well.
The Fundamental Case
The stock trades in line with the footwear industry’s average of 34 times earnings.
The long-term projected EPS growth rate of 16% gives the stock a PEG ratio of about 2. This ratio is a good indication that the stock is still trading at undervalued prices right now.
NKE also comes with a small 0.9% dividend yield which helps to buffer investors against downside movements and reduce portfolio volatility.
The Technical Aspect
Investors looking at Nike’s chart should notice some strong bullish signals right away with a bottom and subsequent rebound.
The “three white knights” pattern in the candlesticks from last week is another strong bullish sign that a reversal is well underway.
Interestingly, the RSI had been hovering at around 30 for the past several trading days. An RSI at this level is usually an indication of being oversold. However, NKT has bounced back with a few positive days in a row yet still remains under the neutral level of 50. That could imply that there is still a lot of positive momentum ahead that should drive the price higher.
The Bottom Line
Based on Nike’s full-year EPS estimates, this stock should be fairly valued at around $165 per share – a gain of more than 26% from its current trading price range.
Whether you’re a conservative investor looking for a defensive play or an aggressive one searching for a solid value play, Nike could be a great addition to your portfolio.
The above analysis of NIKE, Inc. (NKE) was provided by financial writer Daniel Cross.
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