Will Nike Stock Perform?

With shares of Nike (NYSE:NKE) trading around $61, is NKE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Nike is engaged in the design, development, and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company sells its products to retail accounts, through retail stores and Internet sales, and through a mix of independent distributors and licensees around the world. Nike focuses its product offerings in seven key categories: Running, Basketball, Soccer, Men’s Training, Women’s Training, Nike Sportswear, and Action Sports. It also markets products designed for kids, as well as for other athletic and recreational uses. Looking around, many consumers and companies are advocating and opting for a lifestyle that involves more outdoor and physical activity. As the fitness and staying active movement sees progress, Nike is a company that is poised to see rising profits. A recent positive earnings report may be the fuel Nike needs to head higher this coming quarter.

T = Technicals on the Stock Chart are Strong

Nike stock has seen a bullish move towards higher prices in recent years. The stock has pulled-back from all-time highs so it may need a bit of time before continuing higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nike is trading between its rising key averages which signal neutral to bullish price action in the near-term.

NKE

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Nike options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Nike Options

23.47%

16%

14%

What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nike’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nike look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

28.81%

58.33%

-16.00%

-9.56%

Revenue Growth (Y-O-Y)

3.51%

9.39%

7.37%

9.67%

Earnings Reaction

-0.50%

11.06%

6.16%

-1.12%

Nike has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have generally been pleased with Nike’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Nike stock done relative to its peers, Under Armour (NYSE:UA), Crocs (NASDAQ:CROX), Deckers Outdoor (NASDAQ:DECK), and sector?

Nike

Under Armour

Crocs

Deckers Outdoor

Sector

Year-to-Date Return

20.11%

21.74%

13.00%

23.67%

18.75%

Nike has been an avearge relative performer, year-to-date.

Conclusion

Nike offers athletic and fitness related apparel and footwear products to user base that is showing impressive signs of growth. The stock has been on a bullish move higher that has taken it to all-time highs, however, it has now pulled back a bit so may need time before making its next move. Over the last four quarters, investors in the company have generally been pleased as earnings have improved and revenue figures have been on the rise. Relative to its peers and sector, Nike has been an average performer. Look for Nike to OUTPERFORM.

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