Nike has room to run

Investors are too worried about weakness in China. Beyond that sore spot, the sports apparel maker is growing at a steady pace.

By Jonathan Berr Jul 1, 2013 10:03AM
Shares of Nike (NKE) fell Friday after investors became worried about the company's growth slowing in China. That was an overreaction.

Although revenue in China, which accounts for about 9.7% of annual sales, has declined for three straight quarters and the footwear and apparel maker slashed its profit outlook because of it, investors have reason to be optimistic. For one thing, Nike expects China revenue to stabilize in the second half. Moreover, the company's business in other parts of the world is strong enough to offset the sluggish performance in China.
Excluding the impact of changes in foreign currency, revenue for the Nike brand jumped 8% in each product type and in every region except China and Western Europe. Sales in North America surged 12%. Orders for Nike athletic footwear and apparel scheduled for delivery in June through November totaled $12.1 billion at the end of the quarter, an 8% gain on a year-over-year basis.

Indeed, profit for the latest quarter rose 22% to $668 million, or 73 cents per share. Sales climbed 7.4% to $6.7 billion. Both figures topped analysts' expectations.

Investors got plenty of other data to like in Nike's report.

A pedestrian walks past a Nike Inc. in New Delhi, India on June 9, 2013 (© Prashanth Vishwanathan/Bloomberg via Getty Images)Gross margin expanded to 43.9%, a sign that its price increases are taking hold, which is critical considering the rising cost of labor in China and elsewhere. Nike-branded equipment gained 11%, while footwear and apparel rose 7% and 6%, respectively. Basketball, training and running products did especially well, offsetting a slide in action sports and soccer.

Nike shares aren't cheap, trading at a price-to-earnings multiple of 25, a five-year high. But they're a bargain compared with rivals such as Under Armour (UA), which has a multiple of 51.5, and Lululemon (LULU), at 35. The average 52-week price target on Nike stock is $65.05, about 6% higher than where it recently traded.

When buying a stock, investors need to remember that they should be in it for the long haul. Sprinting to the finish line may look good on the track, but it's a terrible way to invest. The time to buy Nike is now as it maintains a steady pace to longer-term gains.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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Jul 1, 2013 11:42AM
Best time to buy? This would have been last year when it was trading just under $100 and was about to split. Gave this advise to my son and he purchased some at this time and is in good position now. For me not smart enough to go on my own instinct.
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