Here’s what to know beyond why NIKE, Inc. (NKE) is a trending stock
Nike (NKE) is one of the most watched stocks by Zacks.com visitors lately. So it might be worth looking at some of the factors that could affect the stock’s short-term performance.
Over the past month, shares of this sportswear maker have returned -5.8%, compared to the +3.7% change in the Zacks S&P 500 composite. Shoes and Retail Apparel, of which Nike is a part, gained 3.5%. The key question now is: what could be the future direction of the title?
While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Nike is expected to post earnings of $0.93 per share, indicating a -19.8% change from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.
The current year earnings consensus estimate of $3.80 indicates a year-over-year change of +1.3%. This estimate has changed by -0.6% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $4.60 indicates a change of +21.1% from what Nike was expected to report a year ago. Over the past month, the estimate has remained unchanged.
have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesNike is ranked Zacks Rank #4 (Sale).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
In the case of Nike, the consensus sales estimate of $12.37 billion for the current quarter indicates a +1% year-over-year change. Estimates of $50.49 billion and $56.17 billion for the current and next fiscal year indicate changes of +8.1% and +11.2%, respectively.
Latest reported results and history of surprises
Nike posted revenue of $12.23 billion in the last quarter, representing a -0.9% year-over-year change. EPS of $0.90 for the same period versus $0.93 a year ago.
Compared to the Zacks consensus estimate of $12.07 billion, reported revenue is a surprise +1.39%. Surprise EPS was +11.11%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly priced, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Nike is rated D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com could help determine whether or not it’s worth paying attention to the market buzz about Nike. However, its Zacks No. 4 ranking suggests it may underperform the broader market in the near term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.