This is not a question that many on Wall Street would have asked themselves last year, like Nike (NYSE: NKE) spent most of the fourth quarter rising to all-time highs. But as we delve into what appears to be a stormy summer, you can be sure that they are asking for it now. Shares of sportswear titan have fallen more than 40% from fourth-quarter highs, and their lowest level since August 2020. In fact, this is the same price at which they were changing hands. before any of us had heard of COVID.
So what are the exact prospects and are there arguments for the actions to be returned in the medium term?
Their fourth-quarter fiscal numbers, released earlier this week, answer that. While both earnings and earnings per share were higher than expected, the former fell slightly year-over-year. The subsequent 7% drop in shares during yesterday’s session sums up Wall Street’s reaction to the latest report. That said, however, Nike still did its best to get an upbeat tone and focus on the positives. John Donahoe, chairman and CEO, said with the results that “Nike’s results this fiscal year are a testament to the unparalleled strength of our brands and our deep connection to consumers. Our competitive advantages, including our Innovative product portfolio and the expansion of digital leadership, demonstrate that our strategy works as we create value through our tireless drive to serve the future of the sport. ”
Winds against near term
It may be difficult for some of us to see exactly where this unmatched strength and competitive advantage is helping stock performance, but as Seaport Research Partners noted last week, Nike “has only dropped 39% of its 52-week highs, compared to 46 “. % that his average partner is down. “This comment came as part of the company’s downgrade of Nike’s shares. They moved them to neutral and took a cautious stance on prospects. in the medium term.
Analyst Mitch Kummetz wrote that “there’s a disconnect between feeling and reality and feeling isn’t exactly fantastic,” but technically the company still outperforms its peers. He went on to explain that Nike’s resilience like the rest of the retail coils is a trend that defies logic. For those of us who are beginning to think that this could justify a toe submerged in water, Kummetz calls for caution. Nike’s price-benefit ratio is still about 23x, even after months of sales, and that’s about twice that of its peer group. As rising inflation and supply chain risks, as well as slowing spending in China, will affect Nike as much, if not more, than the men’s group, this premium is hard to justify in their minds. .
Considering a position
Bank of America’s Lorraine Hutchinson had a similar view when she reiterated her neutral rating last week. “A turbulent environment in China and a faltering US / EMEA macro image balance the long-term positives of high innovation and the margin benefits of a change to DTC,” he wrote in a note to clients. And that perhaps sums up the situation of any retail investor thinking about a new position. Nike isn’t going anywhere in the long run, but it also faces its fair share of fundamental short-term headwinds that are forcing stocks to go through a rather brutal revaluation.
No doubt they are on a well-defined downtrend and set lower lows, but they should soon find some pretty stubborn support around $ 98. If they can spend some time consolidating there and if there are indications that these headwinds could disappear by the end of 2022, there may not be many better purchases than Nike in the second half of 2022. It is definitely a more risky existence. at the moment, but it’s hard to see any position become a winner in the long run.