/home/gurufocu/public_html/news_read.phpWhy Nike’s Stock Could Soar - GuruFocus.com
  1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Robert Stephens, CFA
Robert Stephens, CFA
Articles (246) 

Why Nike’s Stock Could Soar

The company’s growth strategy may widen its economic moat

December 04, 2019 | About:

Nike Inc. (NYSE:NKE) could make further share price gains after its 23% rise over the past year. The sports apparel company is investing in new technology, product innovation and expansion into fast-growing economies such as China to boost its financial performance.

1012736661.png

New technology

Nike acquired technology business Celect in the first quarter of fiscal 2019. Celect has developed unique technology that uses data to more accurately plan inventory levels. The acquisition will improve Nike’s ability to predict demand for its products, which could enable it to have a more efficient supply chain and greater product availability.

In addition, Nike's acquisition of technology company Zodiac in 2018 is increasing the knowledge it has about its customers. This is enabling the company to provide more relevant product recommendations for its customers and increase the amount they spend. It could also increase the company’s customer loyalty levels and widen its economic moat.

Product innovation

The business launched a new technology within its running shoes, called Joyride, in the first quarter. Joyride uses responsive beads that follow the shape of a runner’s foot to deliver greater levels of comfort. The response of Nike’s customers to Joyride has been positive, and it will be rolled out across its range of product categories. It could differentiate the company’s products versus those of its rivals.

In addition, the company is rolling out its Nike Fit technology, which provides a more accurate reading of its customers’ shoe size. This helps consumers more easily find comfortable footwear. It could improve the company’s shopping experience and lead to a higher level of satisfaction among its customers.

Online growth potential

Nike’s mobile app and membership program could further differentiate it from sector peers. For example, its membership program gives consumers early access to new products and easier access to customizable products. This initiative could lead to an increase in the company’s customer loyalty levels and higher sales per customer.

The company’s mobile app also keeps customers informed about new products. The app is being rolled out across an increasing number of countries, which could strengthen Nike's competitive position in key geographies.

Potential threats

The company faces an uncertain period due to the trade war between the U.S. and China. Nike has 110 factories in China, which together account for 18% of its total global manufacturing footprint. If further tariffs are placed on imports from China, the company would have to either accept lower margins or pass the costs on to consumers. Consumer confidence has declined in each of the last three months, which suggests that higher retail prices may cause Nike’s financial performance to be negatively impacted in the short run.

In response, Nike continues to grow its business outside the U.S. For example, in its first fiscal quarter, sales in China increased 27% compared to the same period of the previous year. This represents 60 consecutive quarters of double-digit sales growth for the company in China.

Nike's increasing presence in non-U.S. economies could reduce its reliance on domestic consumers at a time when their confidence is low. The company plans to invest in its digital growth opportunities in China through partnerships with retailer Tmall and technology company WeChat. It will also launch its mobile app in China in fiscal 2020, which could boost its sales performance.

Outlook

Market analysts forecast that the company will produce 11% growth in its earnings per share in fiscal 2020, followed by 16% growth in fiscal 2021. Nike's price-earnings ratio of 35 may not be cheap, but its strategy could boost the stock in the long run.

Disclosure: The author has no positions in any stocks mentioned.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:



Performances of the stocks mentioned by Robert Stephens, CFA


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)