This week, Nike (NYSE:NKE) scored some big points with Wall Street late Monday. Following the company�s fiscal fourth-quarter report, the stock price spiked 5.7% to $87.21.
The company�s profit increased by 14% to $594 million, or $1.24 a share.� This handily beat the consensus estimate of $1.17 a share.�
It certainly helps that demand has been strong — revenue increased by 14% to $5.77 billion, beating the Wall Street consensus expectation of $5.54 billion.�
It�s tough to argue with that performance.� Yet the stock has been volatile this year.
Can Nike give shareholders some more gains?� Here�s a look at the pros and cons:
Pros
Mega brand.� What started as a shoe company has morphed into a global powerhouse, with products that now include apparel, equipment and accessories.� And Nike continues to be the world�s largest athletic footwear and apparel operator.
Like Apple (Nasdaq:AAPL), Nike focuses primarily on marketing, design and product innovation.� Other factors � such as manufacturing � are outsourced.�
With its strong cash flows, Nike has purchased other brands like Converse, Hurley International and Umbro (a top firm in the soccer market).
Research and Development.� Nike makes large investments in this category.� As a result, the company is often an innovator in areas that improve performance and comfort.� This requires a staff with deep expertise in biomechanics, engineering and exercise physiology.
Emerging markets.� For some time, Nike has been making investments in markets like China, India and Brazil.� These countries are undergoing strong increases in wealth � which should bode well for premium athletic wear.
Cons
Competition.� Even with its scale, Nike has lots of pressure from rivals.� The main ones include companies like! Adidas and Puma.� However, there are upstarts that are making inroads.� An example is Lululemon Athletica (Nasdaq:LULU), which has built a strong franchise with yoga apparel.
The Tiger factor.� A critical part of Nike�s brand has been its aggressive endorsement strategy.� The power of this was demonstrated when the company signed Michael Jordan back in the late 1980s.
However, the strategy is extremely expensive and far from fool-proof.� As seen in the example of Tiger Woods, it can potentially be problematic for the brand.�
Costs.� Nike has felt the pressure from the inflation in raw materials, such as cotton.� Transportation costs have also been rising.�
To deal with these problems, Nike has increased prices and cut its marketing budget.� However, this could hurt the long-term growth of the company.
Verdict
Nike has an extremely versatile brand.� While it is primarily focused on athletic footwear, the company�s products have also become pervasive for casual purposes.� Plus, there should be some nice opportunities from its investments in the soccer market.
Yet the big opportunity is in foreign markets.� This should be a nice source of growth for the next few years and Nike is nicely positioned to benefit from the trend.�
In light of these factors, the pros outweigh the cons on the stock.
Tom Taulli�s latest book is �All About Short Selling� and he has an upcoming book called �All About Commodities.�� You can find him at Twitter account @ttaulli.� He does not own a position in any of the stocks named here.
Related Articles:It pays to be short-term bearish on gold right now
Introducing the 24/7 Wall St. Wire
Tags: GLD ,Growth Stocks 2013 ,Growth Stocks To Watch ,Options Spread ,Options Trade ,Precious Metals ,Top Dividend Stocks 2012
No comments:
Post a Comment