Shares of sneaker kingpin Nike (NYSE:NKE) have been feeling the harsh force of macro headwinds hitting the consumer. As more time passes with no recession, there’s a good chance that discretionary spending could come back online in a big way, and that has one bullish analyst (over at UBS) viewing Nike stock as a potential double from here under a bull-case scenario.
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Undoubtedly, Nike stock looks historically undervalued after taking a big hit to the chin during the 2021-22 sell-off. Though a double could take at least three years to materialize, I don’t view such a multi-year move as far-fetched if the right cards fall into place, allowing Nike to make the jump. In any case, I continue to maintain my bullish stance on the stock.
Of course, UBS’ “double” comments are looking at shares of Nike through a longer-term lens (not just the year ahead, but many years ahead). The company has been rocked by materials and shipping costs over the years. Combine margin pressures with slumping sales due to a fading consumer, and it certainly does seem like a horrific hurricane of headwinds has hit Nike.
In due time, though, the hurricane will pass, and Nike may be able to find its footing (forgive the pun) again, perhaps a lot faster than investors expect. With one of the strongest brands in the athletic apparel space, I do not doubt that Nike will feel the wind at its back again once the slew of transitory setbacks finally disappear.
UBS Analyst Pounding the Table on Shares of Nike
Indeed, saying that shares of a company “could double” is bound to get the attention of everyday retail investors, and though the headline is jarring, readers must know that UBS is looking pretty far out, all the way to Nike’s Fiscal Year 2026.
So, short-term traders need not apply to shares of Nike if they seek a double. If you’re in it for the next few years, though, Nike stock definitely looks very compelling as it comes off what has been a brutal past few years.
UBS (NYSE:UBS) analyst Jay Sole said that “as soon as the market starts to sense sales growth rate and margin improvement, the stock will start moving higher.” For reference, these comments were made in late July, and NKE stock was trading at around the same price that it’s at today.
Personally, I think Sole is right on the money. It’s the brave investors who get in before the one-two punch of margin and growth can work its way into the quarterly results.
Of course, the timing will be tricky, given inflation and macro headwinds (a recession may still hit at some point in the first half of 2024) could persist for some time, perhaps another few quarters. Regardless, the risk/reward ratio in Nike shares seems too good to pass up as the company looks to get through what could be the last wave of headwinds.
Don’t Make Too Much of the Inventory Glut
The company’s $8.5 billion inventory glut may concern some. Also, although discounting is bound to hit margins over the nearer term, everyone must remember that we’re talking about Nike-branded inventory here, which, I believe, will be quick to sell once the economic tides turn and consumers are all ready to splurge again. Once consumers have disposable income, it will be high-end Nike sneakers they’ll be lacing up, not the cheaper alternatives.
In that regard, I find that there’s too much negativity and pessimism surrounding the stock following its fourth-quarter miss, which saw earnings per share (EPS) of $0.66, falling shy of the analyst consensus by two pennies.
Is NKE Stock a Buy, According to Analysts?
On TipRanks, NKE stock comes in as a Moderate Buy. Out of 28 analyst ratings, there are 20 Buys, five Holds, and three Sells. The average Nike stock price target is $130.09, implying upside potential of 20.9%. Analyst price targets range from a low of $88.00 per share to a high of $150.00 per share.
The Bottom Line on Nike Stock
Nike stock is fresh off a rough couple of years. Everything seems to have gone wrong from the macro perspective. Soon enough, the reverse may become true. Just ask the many bullish analysts covering the name.
While UBS thinks Nike stock could double in a few years, its current price target sits at $150.00. It’s a Street-high target that entails 39.4% upside potential from here.
Nike is a legendary brand, and shares should go for a considerable premium to the peer group. At 33.5 times trailing price-to-earnings, above the apparel retail industry average of 25.5 times, there’s a premium, but one that could swell once investors warm up to the discretionaries again. Historically speaking, Nike is cheap, given that its five-year average price-to-earnings is 45 times.
