As one of the largest and most popular athletic brands in the world, it is of little surprise that Nike, Inc. (NKE - Get Rating) has retained the top spot within its industry in both athletic apparel and footwear for many years. From importing and reselling shoes from the back of a car to leading the industry, NKE has successfully worked its way to the top through constant innovation and strong customer engagement.

In the face of the closure of brick-and-mortar retail stores during the COVID-19 pandemic, NKE has capitalized on the home workout trend very well. Its digital sales surged 84% during its last reported last quarter, with triple-digit growth in North America and strong double-digit increases in EMEA, Greater China and APLA.

The company has masterfully powered up its e-commerce channels with increased consumer engagement. With an increase in demand driven by increased interest in home workouts, the stock seems poised to soar in 2021.

The company’s global brand recognition and unmatched loyalty of its customers have allowed it to gain 40% over the past year. This impressive performance combined with several other factors has helped NKE earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates NKE:

Trade Grade: A

NKE is currently trading above its 50-day and 200-day moving averages of $136.40 and $111.99, respectively, indicating that the stock is in an uptrend. In fact, the stock has gained 10.7% over the past three months reflecting  solid short-term bullishness.

NKE’s revenue has increased 9% year-over-year to $11.24 billion in the fiscal second quarter ended November 30, 2020. This revenue increase is attributable primarily to double-digit growth in direct sales and  growth in Sportswear. Its net income rose 12% from the prior-year quarter to $1.25 billion, while its EPS grew 13% from its  year-ago value to $0.80. Its gross profit increased 7% year-over year to $4.85 billion over this period.

The company  recently announced the launch of Nike Dunk Low and Dunk High with new colorways. They have already been released in Greater China and NKE planned  to release them throughout Asia-Pacific, Latin America, and Europe on January 14. Also,  the company’s Converse x Concepts, Southern Flame All Star BB Evo and Chuck 70, will be launched on January 28 at Boston and New York. These new launches should boost NKE’s cash balance substantially.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, NKE is  well positioned. The stock is currently trading just 4.5% below its 52-week high of $147.95, which it hit on December 21.

The company’s net revenue has grown at a CAGR of 3.3% over the past three years, while its total assets increased at a CAGR of 13.1% over this period. Also, NKE’s levered free cash flow increased at a CAGR of 22.2% over the past three years. This can be attributed to its continued investments in innovative platforms to better serve its large and engaged customer base.

Peer Grade: C

NKE is currently ranked #1  of 34 stocks in the Athletics & Recreation industry. Other popular stocks in this industry are Brunswick Corporation (BC - Get Rating), Adidas AG. (ADDYY - Get Rating) and Foot Locker, Inc. (FL - Get Rating)

While BC beat NKE, gaining 49.3% over the past year, FL and ADDYY returned 18.9% and 2.6%, respectively, over this period.

Industry Rank: A

The Athletics & Recreation industry is ranked #19 of the 123 StockNews.com industries. The companies in this industry manufacture and sell athletic footwear, apparel, equipment, boats, hunting equipment, and accessories for men, women, and kids worldwide through retail outlets and online platforms.

As the coronavirus shutdown forced many people to work from home, athleisure quickly became the go-to gear  with more people choosing to buy workout apparel rather than traditional office attire. Since wellness and health are growing as a  priority for consumers, people are prioritizing purchases in sportswear and activewear, thereby significantly boosting the sales of the companies catering to these categories.

Overall POWR Rating: A (Strong Buy)

NKE is rated “Strong Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

Based on the factors discussed here, NKE is well positioned to outperform the broader market in 2021 despite gaining 40% over the past year. With strong double-digit growth in NIKE Direct, as well as the Sportswear category, the company is set to move even faster, thereby fueling sustainable, long-term growth and profitability.

Driven by  strong demand for its sneakers and workout apparel from worldwide markets  amid a growing desire to stay fit, it may be wise for investors to bet on the stock right now.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for NKE. It has an average broker rating of 1.47, indicating favorable analyst sentiment. Of 33 Wall Street analysts that rated the stock, 11 rated it a “Strong Buy.”

The consensus EPS estimate of $0.51 for the quarter ending March 31, 2021 represents a  200% improvement year-over-year. The consensus revenue estimate of $10.29 billion for the next quarter represents a 62.9% increase from the same period last year. This outlook should keep NKE’s momentum alive.

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NKE shares fell $0.30 (-0.21%) in premarket trading Friday. Year-to-date, NKE has declined -0.69%, versus a 0.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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