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Nike: Growth Company with Big Market Opportunity

Nike (NKE) is still a growth company with plenty of market opportunities ahead, according to its Executive Vice President and Chief Financial Officer Matt Friend.

Friend made this statement following the release of the company’s Q1 financial results, praising the company’s Consumer Direct Acceleration Strategy: “NIKE is a growth company with a market opportunity as large as it’s ever been,” he said. “Our Q1 results illustrate how NIKE’s Consumer Direct Acceleration strategy continues to fuel growth and transform our long-term financial model.”

Last year, Nike changed its business strategy. It shifted from an indirect to a direct business model, cutting off the middlemen. That helped the athletic apparel company raise its operating margins from around 8 percent in May 2020 to 15.5 percent in the most recent quarter.

I am bullish on Nike stock. (See Nike stock charts on TipRanks)

Solid Performance at Nike

Nike had a solid Q1. Revenues grew 12 percent, led by NIKE Direct growth and the normalization of owned physical retail, which grew 24 percent, surpassing the pre-pandemic levels from the first quarter of fiscal 2020. Meanwhile, NIKE Brand Digital business showed continued strong growth, increasing by 25 percent, led by North America growth of 43 percent.

Nike’s results would have been even better if it weren’t for global supply chain bottlenecks. “While Nike closed FY2021 with record revenue numbers, the COVID-19-related global supply chain issues have tested the brand this past quarter. Nike was forced to shutter factories in Vietnam in July due to COVID-19 outbreaks, which could put a damper on sales heading into the rest of the year,” said Ms. Mousumi Behari, Digital Strategy Practice Lead at Avionos.

Nike’s Advantage: Connection with Customers

Nike has many competitive advantages, including branding, scale and scope, customization, and innovation. All of its advantages can be summarized in one: customer connections. “NIKE’s strong results this quarter are continued proof of our deep consumer connections, unrelenting innovation pipeline and a digital advantage that fuels our brand momentum,” said John Donahoe, President and CEO, NIKE, Inc. “We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of sport.”

Wall Street has taken notice. Nike has been a stellar performer. Over the last ten years, the company has delivered an average annual total return of 23 percent, compared to 16 percent for the S&P 500.

The Analysts’ Take

Nike has a strong following in the analyst community. In the last three months, 24 analysts followed its shares with a Strong Buying rating, with an average price target of $186.04 over the next 12 months, and a high forecast of $213.00 and a low forecast of $168.00. The average Nike price target represents a 23.95% change from the last price of $149.59.

Bottom Line

Nike sees plenty of opportunities ahead, and it is well prepared to exploit them, delivering superior returns to its stockholders.

Disclosure: At the time of publication, Panos Mourdoukoutas had a position in Nike.

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