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.



More on moneyNOW
Tags: LULUNKEUA
1Comment
Jul 1, 2013 11:42AM
avatar
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.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

126
126 rated 1
286
286 rated 2
474
474 rated 3
680
680 rated 4
626
626 rated 5
609
609 rated 6
620
620 rated 7
462
462 rated 8
304
304 rated 9
132
132 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.