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Nike (NKE) Soars 15% on Blowout Earnings: Is More Upside Left?

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Investors looking for some long-term gems should certainly keep an eye on NIKE, Inc. (NKE - Free Report) . The company’s ability to connect with consumers’ sentiments and its reach into high-growth areas across the globe should certainly allure investors and market pundits. Moreover, the company recently registered blockbuster fiscal fourth-quarter earnings and sales results that easily surpassed analysts’ expectations.

Nike’s fiscal fourth-quarter period that includes the month of March, April and May saw net income of $1.5 billion, or earnings per share of 93 cents against a loss of $790 million or 51 cents a share a year earlier, as mentioned in a CNBC article. Analysts largely expect earnings per share at 51 cents per share.

Revenues for the fiscal fourth-quarter period came in at $12.34 billion, up from $6.31 billion reported a year earlier, and easily topped analysts’ expectations of $11.01 billion, added the CNBC article. Revenues, by the way, were fueled by mammoth sales of its products in North America. To put things into perspective, in North America, sales more than doubled to a staggering $5.38 billion compared to a year earlier and a whopping 29% more on a two-year basis, the CNBC article added.

What’s more encouraging is that in the troubled areas of Greater China, sales jumped 17% at $1.93 billion, citing the CNBC article. Lest we forget, Nike along with other companies such as H&M and Adidas AG (ADDYY - Free Report) were embroiled in some kind of a social media backlash after they raised concerns about reports on forced labor issues in China’s Xinjiang region. Separately, digital sales that account for a significant portion of Nike’s total revenues were also up 41% year over year and 147% compared to the same period in 2019.

Thus, thanks to the global athletic apparel behemoth’s better-than-expected fiscal fourth-quarter results on Jun 24, its shares actually soared 15.5% on Jun 25, placing the stock in record territory. The stock, in reality, notched its biggest one-day percentage gain since it jumped 15.2% on Mar 24, 2020, citing a MarketWatch article.

However, despite Nike’s stock price shooting up to record territory, it still underperforms the broader Shoes and Retail Apparel industry on a year-to-date basis (+9.1% vs +10.8%). So, the million-dollar question is whether its stock price can scale upward further, and in some point of time beat the industry’s return?

In short, yes! Nike has tremendous growth prospects and would prove of great value to a long-term investor. Even though people have started to slowly return to schools and offices, the requirement for comfortable clothing and workout wear hasn’t ebbed, something that bodes well for Nike. In fact, Nike’s wholesales business took a beating when shopping malls were shut down due to the coronavirus pandemic. But now with the economy gradually reopening, things have started to look up for Nike’s wholesale business and some of Nike’s wholesale partners like DICKS Sporting Goods, Inc. (DKS - Free Report) and Foot Locker, Inc. (FL - Free Report) .

Growth in the company’s e-commerce segment was mostly fueled by Nike’s membership model, and in all likelihood, is likely to continue doing so in the near future. After all, Nike members who get first access to the company’s exclusive products helped online purchases in the fiscal fourth-quarter to hit a record $3 billion, as mentioned in the CNBC article.

Talking about sales, in the fiscal fourth quarter, Nike’s products were mostly sold at the original selling price. An encouraging sign indeed as the company relied less on markdowns, or in other words, needn’t devalue its products. This means the company’s pricing power remains strong, making it immensely difficult for its peers to gain market share.

Nike, anyhow, is one of the most sought-after sportswear brands since the 1980s, giving it an economic moat or a competitive advantage. Nike boasts shoe brands like Jordan and Converse, which are perennial favorites amongst its customers. And talking about competition, Nike reported $37.4 billion in revenues for 2020, up an astounding 35% from its closest competitor, Adidas AG, quoting another MarketWatch article.

Furthermore, Nike’s geographical reach, especially in growing areas like emerging economies, should give the company a more competitive advantage over its peers in the long run. In emerging economies, Nike’s product sales are expected to improve considerably from an evolving huge middle-class population.

Last but not the least, Nike at present has a net profit margin of 12.86%, way more than the industry’s 3.99%. A higher net profit margin compared to the industry indicates that the company is being able to price its products correctly and apply good cost-control measures, a tell-tale sign that the business is quite successful. As a result, the Zacks Rank #3 (Hold) company’s expected earnings growth rate for the next five-year period is 20.9% versus the industry’s 18.5%. For this year, the company’s shares are projected to climb a healthy 9.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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