Nike (NKE -1.33%) Shares are currently doing well, jumping 57% from September’s 52-week low of $82.22. Swoosh has accelerated footwear sales growth, and investors expect further growth as the company further strengthens its dominance through digital connectivity with its customers.
But investors face a dilemma. Is Nike’s Brand and Growth Worth a High Price? Let’s dig into the factors driving Nike’s momentum to determine if the stock is still a buy.
Nike is picking up the pace of sales
Nike total sales increased 17% year-over-year on a reported basis in the second quarter that ended November. much faster than the 10% increase in
Despite its rapid pace of growth, Nike has yet to catch up. lululemon athletica, especially in lululemon’s core business of apparel. But his two-thirds of Nike’s revenue comes from footwear, revolving around a major footwear competitor. Adidas.
Nike has a catalyst for further growth
Three Stripes reported a currency-adjusted sales increase of just 4% in its most recent quarter. Adidas recently ended its partnership with Ye, formerly known as Kanye Her West, citing anti-Semitic remarks made by the music artist. West’s Yeezy sneakers were his Adidas top sellers, but the void is an opportunity for Nike to capture market share.
Nike has had a blast with its recently launched new LeBron 20 sneaker. Management told analysts on a recent earnings call that they expect more releases in the near future, including “exciting signature debuts” from basketball and Jordan Brand.
What’s more, Nike could get a further boost if China’s economy starts to recover. It was Nike’s fastest growing market pre-pandemic, and China’s weakening economy was a major drag on Nike’s growth last year. , which fell 13% year-over-year in fiscal 2022, could turn around in this key market for Nike after China revenue rose 6% last quarter.
Are you buying stocks?
Before Nike wowed investors with its latest earnings report, analysts had lowered their forecasts, citing economic uncertainty and ballooning inventory levels. That has changed. Analysts have upgraded their estimates, and full-year sales are now expected to grow by 7%, but that still seems a bit conservative given the company’s momentum.
In fact, current revenue growth estimates are still below management’s long-term goal of high single-digit to low double-digit revenue growth by fiscal 2025. , but as the stock price climbs, it’s getting harder to justify Nike’s valuation.
Nike’s price/earnings ratio (P/E) is currently at 41 based on this year’s earnings projections, well above lululemon’s 32 P/E. Over the next few years he will grow his earnings at a mid-teens rate. One of his ways to neutralize the stock’s high price tag is to start small positions and hold dollar-cost averaging for the long term. This is how I approach high P/E stocks that I want to hold long term.
Nike has tremendous brand power, a strong e-commerce business, and a membership program that allows brands to stay connected to millions of loyal customers. These qualities should continue to grow in business value over the years.
John Ballard has no positions in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica and Nike. The Motley Fool’s U.S. headquarters recommends the following options: Nike’s long call for his $47.50 in January 2025. The Motley Fool’s U.S. headquarters has a disclosure policy.