NIKE, Inc. (NKE) is a Trending Stock: The Facts You Need to Know Before You Bet on It

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Nike (NKE) recently made Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Shares of this sportswear maker have returned -16% over the past month compared to the -3.5% change in the Zacks S&P 500 composite. The industry Zacks Shoes and Retail Apparel, to which Nike belongs, lost 12.1% over this period. Now the key question is: where could the stock be heading in the near term?

While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, Nike is expected to post earnings of $0.67 per share, indicating a -19.3% change from the prior year quarter. The Zacks consensus estimate has changed -13.8% over the past 30 days.

The consensus earnings estimate of $3.15 for the current fiscal year indicates a -16% year-over-year change. This estimate has changed by -17.1% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $3.97 indicates a change of +26.2% from what Nike was expected to report a year ago. Over the past month, the estimate has changed by -13.9%.

have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesNike is ranked Zacks Rank #4 (Sale).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase its revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.

For Nike, the consensus sales estimate for the current quarter of $12.55 billion indicates a year-over-year change of +10.5%. For the current and future fiscal years, the estimates of $48.97 billion and $53.33 billion indicate variations of +4.9% and +8.9%, respectively.

Latest reported results and history of surprises

Nike posted revenue of $12.69 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $0.93 for the same period versus $1.16 a year ago.

Compared to the Zacks consensus estimate of $12.33 billion, reported revenue is a surprise of +2.91%. The EPS surprise was +2.2%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

While comparing the current values ​​of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , with its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of the stock price .

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Nike is rated D on this front, indicating that it is trading at a premium to its peers. Click here to see the values ​​of some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information on Zacks.com could help determine whether or not it’s worth paying attention to the market buzz about Nike. However, its Zacks No. 4 ranking suggests it may underperform the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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