Nike stock forecast: is Nike a good stock to buy?

Nike has had an encouraging few months, but can it sustain its growth?

The Nike stock forecast has proven resilient in 2020 – despite most retailers having a pretty tough time of it during the coronavirus pandemic.

Investors cheered upbeat Nike stock news as recently as December 18, when the sportswear giant unveiled financial results for the second quarter of the 2021 fiscal year.

Despite the uncertainty brought about by Covid-19, revenues in the three months ending November 30 were up 9 per cent compared with a year earlier. This was fuelled by some impressive sales figures in greater China. Other highlights include digital sales of Nike brand products enjoying triple-digit growth in North America.

Analysts were anticipating that earnings per share (EPS) would stand at 63 cents for the quarter, with revenue of $10.55bn. Nike comfortably blew this out of the water, with EPS of 78 cents and revenue of $11.2bn.

Even though there has been a substantial fall in the number of shoppers heading to Nike’s physical branches, this was more than offset by the uptick in transactions conducted through its online platforms.

In reaction to the Nike stock news, CEO John Donahoe said:

“Nike’s strong results during a dynamic environment show the power of staying on the offence. Fuelled by compelling innovative product and global brand momentum, we continue to extend our leadership. Our strategy is working, and we are excited for what’s ahead.”

The Nike stock forecast proved resilient in 2020 despite most retailers having a pretty tough time of it during the coronavirus pandemic, and it has had a very good 2021 so far.

This was backed up when the sportswear firm released its fourth-quarter and full-year earnings on 24 July. 

The results show that overall revenue for the quarter was $12.34bn, up by just over 12% from the $11.01bn expected by Refinitiv – and almost double the $6.31bn recorded in Q4 2020.

Full-year revenues increased 19% in the 2019-20 financial year to $44.5bn.

Earnings per share for Q4 came to $0.93, up 82% on the $0.51 predicted by analysts at Refinitiv. Earnings per share for the full year came in at $3.56.

Sales boost

The sales boost was largely due to the company selling more of its items at full price and having to rely less on discounts. In Nike’s biggest market, North America, sales went up by more than 100% from the year-ago quarter as people started to express more confidence than they had during the darkest days of the pandemic, hitting a record $5.38bn. The report also showed that Nike’s North American sales rose 29% over the last two years.

Sales in the Greater China region were also encouraging, though the sales increase was not so dramatic, up 17% to $1.93bn. This growth in one of Nike’s most interesting emerging markets was in spite of a threatened boycott by Chinese customers over concerns the company had expressed over claims of forced labour in the Xinjiang province. 

Nevertheless, the figures will be disappointing for analysts, who predicted quarterly sales in China would be in the region of $2.25bn.

However, it was in its online and digital sales where Nike really shone. Digital sales were up year on year by 41% and by 147% over the course of two years. This was, in part, down to the success of Nike’s range of apps, which allow people to sign up as members and get special offers, as well as the opportunity to track their runs and fitness workouts. 

The company’s CEO, John J. Donahoe said in a post-report call:

“A key differentiator for us is membership. It has proven to be a compelling driver of repeat engagement and buying across digital and physical retail. In Q4, we continue to see growth and member demand outpace total digital growth, hitting a new record of $3bn. This member demand growth was underscored by strong results across the consumer funnel including member engagement, average order value and buying frequency. In this fiscal year, we met the goals we set at our last Investor Day around membership of full year early and now have more than 300 million Nike members.”

Digital growth

Analysts were also encouraged to see digital sales surge even when physical stores reopened, and believe this could be a trend that continues, meaning we are seeing positive Nike stock forecasts for 2021 and beyond.  

Back in the first quarter of the fiscal year, Nike revealed that e-commerce represented 30% of all sales. The company had been expecting to hit this target in three years’ time – and executives firmly believe the shift to online will be permanent and continue to rise. 

Targets have now been hastily revised, and in the not-too-distant future, it’s expected e-commerce will have a 50% share of sales. 

Worsening Covid-19 infection rates over the Christmas period also prompted many consumers to buy gifts for their loved ones online, and once people got into the habit of shopping digitally, they continued to do so through the rest of the financial year. 

The Nike stock forecast reflects the incredible strength of the brand, with analysts raising their Nike stock projections, which has to be good news for the Nike share price forecast.

John Kernan, an analyst at Cowen & Co, said he had moved his Nike price target from $145 to $181 on the back of the results. In a note to clients, he said:

“Management’s confidence is hitting an inflection and Q4 results indicate the digitally driven acceleration in the financial model.”

In the same vein, companies like Telsey Advisory Group, UBS and Credit Suisse also changed their Nike stock predictions and targets to reflect the report.  

The markets respond

The markets responded positively to the latest report, with the Nike share price going from $133.60 to $152.38 overnight, a rise of more than 14%. When the markets opened on 28 June, the price was $153.71, which was a little over 127% more than the low of $67.45 that it hit on 16 March 2020 as the pandemic kicked off. 

As far as what investors should do with their Nike stock goes, the signs seem to be encouraging. Out of 28 investment analysts polled by CNN, two said people should buy the stock, two said it would outperform expectations, two said people who owned stock in the company should hold on to it for now, just one said it would underperform and no one recommended selling the stock. 

In terms of where the Nike stock forecast for 2021 and the start of 2022 should be, the news looks optimistic. The lowest prediction sees it stand at $162, a rise of just under 6%, while the highest is $214, a rise of a little over 40%. The median prediction saw a rise to $180, up by around 18%.

Although the sporting world has experienced extensive disruption during the pandemic, things are beginning to return to normal. This should help prevent lucrative merchandising deals from coming under threat. 

Indeed, the Euro 2020 championships have seen many footballers associated with Nike, such as Portugal’s Cristiano Ronaldo, come to the fore. As the stars of the game shine, that will encourage people to buy Nike and represent good news for the Nike share price.

Trade NIKE Inc - NKE shares price

NIKE Inc
Daily change
157.39
Low: 154.44
High: 157.73

FAQs  

The company has managed to mitigate against most of the problems it has faced over the Coronavirus pandemic and Nike stock forecasts are mostly positive. However, a few words of caution. Firstly, the company is trading at an all-time high; secondly, it has not been doing as well in China as analysts were expecting. 

If you want to invest in the company, please remember that prices can go down as well as up, you should do your own research, and you should never invest more money than you can afford to lose. Always remember your decision to trade depends on your attitude to risk, your expertise in this market and the spread of your investment portfolio.

Yes, it does. According to this latest quarterly report, investors will receive diluted earnings of $0.93 for the last quarter and $3.56 for the last year.

It can be argued that it is. The website GuruFocus says it is “significantly overvalued” and that, all things being equal, shares should be around the $100 mark, or about a third of what it was at the time of writing.

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FURTHER READING: How to find good stocks
FURTHER READING: Five investment rules to always remember

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