Nike (NKE, Financial) has been struggling for quite a few months as the stock has pulled back considerably from its 52-week highs. However, the recent weakness has opened up a buying opportunity, especially heading into the earnings season.
Nike is aggressively focusing to achieve its goal
In the clothing industry, the activewear market has displayed the highest growth rate, which is projected to carry on booming at approximately 4.5% CAGR through 2020 as people around the globe are becoming more health conscious, therefore taking fitness more seriously. As an outcome, middle-class growth in countries like China looks promising for these kinds of products.
Not only this, the company should also gain a huge advantage from the rise of athletic wear, which is also known as "athleisure" apparel. As per Quartz, the increasing demand of this kind of apparel is prevalent in the United States as well as China.
In China, the number of people over the age of 20 who believe exercise is important has surged to 94%. Moreover, people’s yearly spending on exercise and sports goods has also escalated to an average $145, a surge of 52% compared to that in 2007.
Due to this trend, this particular industry is being crowded, causing many companies to struggle in gaining market share. However, Nike holds a leading position in this segment and is well positioned for growth over the next few years. The company can easily leverage its brand to further fortify its lead in this segment.
On the downside, Nike has been dealing with decelerating sales as well as stress from smaller competitors snatching market share in significant segments. However, Nike should do better in the long-term, as its profit margins have endured to surge on the back of rising e-commerce sales.
Most significantly, the company has already set a goal to reach $50 billion in revenue by 2020, an increment of $20 billion compared to the $30.6 billion the company generated in sales in 2015. A majority of that growth is projected to arrive from the direct-to-consumer channel, which comprises the company’s own stores as well as e-commerce. Nike projects direct-to-consumer to grow from $6.6 billion in the previous year to $16 billion in 2020.
Conclusion
Nike’s growth prospects look strong for the long term and investors can use the recent pullback to buy the stock on the cheap. I believe the stock is poised to move higher, especially going into the earnings report.
Disclosure: I don't hold a position in the stocks mentioned in the article.
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