Nike (NKE) set to create long-term shareholder value. Is the stock a buy?

Nike, Inc. (NYSE: NKE) is the undisputed leader in the thriving sportswear market, with strong financial performance that has outshined its close competitors. In the past several weeks, the sneaker maker’s stock traded below the 52-week averages, in line with the general trend in the market. It is down 31% from the November peak.

While the low valuation looks attractive from the investment perspective, it is important to consider all factors before buying. NKE has an impressive track record of outperforming the S&P 500 index and has generated more than 100% returns for shareholders over the past ten years. Thanks to the company’s brand value and strong fundamentals, it has long been an investors’ favorite.

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It is very likely that the company would continue generating strong shareholder value in the foreseeable future. It has returned capital to shareholders regularly through dividends and share repurchases. That, combined with continued innovation and the high relevance of Nike products, makes the stock a good long-term bet.

Resilience

The Beaverton-based company showed surprising resilience during the pandemic, defying fears that the weak demand for discretionary goods, due to weak consumer sentiment, would affect sales. Financial performance has been particularly strong in the past two years, with quarterly earnings beating estimates consistently. Sales benefited from the Consumer Direct Acceleration Strategy, which helped fight headwinds from COVID-related disruption and the market shutdown.

Mixed Q3

Supported by the steady uptick in the direct-to-customer business, sales increased 5% annually to about $11 billion in the third quarter of 2022 and topped expectations. Meanwhile, a double-digit increase in costs and expenses dragged down the bottom line and earnings declined 3% to $0.87 per share. Region-wise, North America continued to be the main growth driver.

From Nike’s Q3 2022 earnings conference call:

“NIKE’s brand strength and consumer demand remain at an all-time high and we are confident in our business momentum. Our deep focus on the consumer and sport is what sets us apart from the rest. We continue to leverage the same principles for how we are strategically and financially managing the company. And as we approach our 50-year anniversary, we are reminded of NIKE’s rich history of delivering consistent results even through periods of uncertainty as we build NIKE for the future.”

Outlook

Strong cash flows and overall financial flexibility comes in handy for meeting the management’s expansion goals and overcoming macroeconomic headwinds. However, elevated inflation and weak consumer sentiment due to the Russia-Ukraine conflict will have a negative impact on sales in the near term.

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NIKE Q3 2022 Earnings Call Transcript

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Nike’s stock entered 2022 on a high note but it could not maintain the uptrend. It has lost about 25% so far. The shares closed the last trading session higher, extending the recent gains.