Nike Inc. (NKE, $73.64) reported first quarter earnings of 86 cents per share vs. the consensus 78 cents and last year’s 63 cents, driving the stock up $3.30 today.Revenue growth of 7.7% came in as expected, on gains in all product types and geographies, except greater China.Future orders are up 8%.Reuters reported, “Quarterly gross margin benefitted from easing raw material costs, a shift in mix of [the] company's revenues to higher margin products, [and] lower discounts.”
Nike is a leading worldwide seller of athletic footwear and apparel. Product innovation and sports events are driving top-line growth in most geographic regions. Nike sold its Umbro and Cole Haan businesses last winter.
Earnings per share (EPS) are expected to grow 12%, 15% and 14% over the next three years.The price earnings ratio (PE) is 25, and the dividend yield is 1.1%.
I found eleven investment firms which raised their ratings and/or price targets on Nike this week, and only one – Stifel -- expressing caution, by cutting its rating from Buy to Hold.I wholeheartedly agree with Stifel.It’s not that the stock won’t keep going up; it’s reaching new highs and quite likely to continue rising.It’s just that with a PE that’s double the earnings growth rate, Nike is morphing from in “investment” into a “gamble”.There comes a point when irrational exuberance kicks in, and Nike is there.That being said, the upcoming Oct. 9 Investor Day will be another catalyst to spur share price momentum.
We began recommending Nike stock on Ransom Notes Radio on March 11, when the price closed at $54.53.It’s up 35% since then.
The share price broke past upside resistance in early September, and reached new highs on Friday. While I love buying stocks which are reaching new highs, I prefer to limit my risk by focusing on those which appear undervalued.
If I owned Nike, I would hold it and use stop-loss orders to protect my profits.If I was itching to buy the stock, I’d wait for a pullback to at least $70, and preferably wait for a market correction to take the price below $68.