What is so special about this small town in the Great Northwest? It is home to the legendary athletic apparel company Nike (NKE). Investors seem to be waking up to the way management keeps executing judging by its 10% rise yesterday. I think there is more in store for Nike bulls as well.
Awesome Quarter, Better Outlook
The catalyst behind the big jump was an excellent quarter ended May 31, in which earnings grew 14% to $1.24 per share. This bested analyst expectations for $1.17 per share. Better yet, Chief Executive Mark Parker said that the company could generate as much as $30 billion in sales by 2015, which would be above the earlier goal of $27 billion.
“Our fiscal 2011 results demonstrate that NIKE, Inc. has made substantial progress to deliver our 2015 global growth strategy and objectives,” said Parker. “Our ability to create innovative product and exciting retail destinations, while leveraging our powerful supply chain and strong balance sheet, allows us to attack the biggest opportunities to continue transforming the global marketplace.”
More To Come
It is clear that momentum is on the side of Nike bulls at this point and I surely wouldn’t want to be short this stock now. It sports a strong ROE of 21.32%, generated $2.25 billion in operating cash flow the past 12 months, and has a healthy balance sheet with only 6% debt/equity.
Analysts expect the company to earn $4.80 per share this fiscal year, but given the recent results, this number could be bumped up. This would put the current-year P/E at about 18.5x, which isn’t terribly cheap, but warranted given its market position and growth opportunities.
The Chart
Yesterday’s move on huge volume was great for the bulls but actually places the stock right at resistance. It has hit this level twice over the past year and both times it marked a top, so watch the $90 level closely. Any upside breach of this level will cause more buyers to rush in. The big question is whether or not there is enough juice in the stock after yesterday’s rise in order to do that. I wouldn’t bet against that.
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