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When to Buy Nike? Just Do It

NEW YORK (TheStreet) -- Chasing Nike (NKE - Get Report) in the footwear business has been like chasing one's own shadow. This is what rivals like Reebok and Adidas (ADDYY) have learned over the past several decades.

But with Nike stock still coasting near 52-week highs, the more pressing question these days is whether investors should chase the shares. Nike stock closed Tuesday at $79.64, up 1.6% on the year. But the shares are up 13% since February.

Since Nike's strong fiscal second-quarter results were announced in December, there has been a sense of "nothing can stop us now." Among other difficulties, the company has weathered the storm of brutal economic conditions in China, which has impacted its growth.

Amid all of this, the biggest surprise was how the company's rivals like Under Armour (UA) fumbled the ball. They missed an opening to finally exploit a Nike weakness. That opportunity didn't last long.

Nike management worked hard to reduce the company's inventory. This is while they adjust the company's focus to new consumer buying trends around the globe.

Today, the company has reclaimed its lead in areas like marketing and product development. This has translated into strong share gains, revenue, and profits. Investors are wondering if there was ever a slowdown.

Although these shares aren't cheap at 25 times trailing earnings, investors may never get another opportunity to buy lower. For that matter, given the quality of the company's management and Nike's market-share lead, these shares never fall far below their fair market value. And waiting may cost even more.

Nike will report fiscal third-quarter results on Thursday. Analysts will be looking for earnings of 72 cents per share on revenue of $6.69 billion, which would represent 8% year-over-year revenue growth. Management will look to continue this year's momentum by demonstration strong margin expansion.

In the December quarter, Nike posted revenue growth of 8%, which was in-line with consensus estimates. The standout metric was the 40% surge in earnings, which reached $537 million. I bring this up to remind investors not to expect a similar earnings performance.

The results on Thursday will be impacted by costs related to the winter Olympics in Russia. These costs were associated with marketing and product launches. Management has also mentioned that the company will be preparing for the upcoming FIFA World Cup this summer, which suggests that there will be costs associated with that event as well.

As it stands, investors should prepare for a couple of quarters where earnings will trail revenue by a meaningful margin. This quarter won't be an exception. But with gross margins in the December quarter advancing 140 basis points to 43.9% of total sales, management continues to demonstrate strong operating sales leverage.

As they have done for most of the year, management shifted towards higher margin businesses. This took the pressure of input costs. That and the fact that the company utilized its strong direct-to-consumer sales model resulted in margin expansion.

So on Thursday, investors should expect similar-to-slightly better results. Given Nike's focus on innovation and the company's long-term revenue growth projections, these shares should continue making new highs. So my advice to investors who have wondered about the best time to buy Nike is this: don't think about it -- just do it.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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