The recent gains in Nike (NKE - Get Report) stock (up 6.5% since May) have been attributed to the popularity of soccer ... excuse me, futbol. This suggests that once the final goal is made investors should pack up their tents and kick Nike to the curb. This doesn't make sense.
The stock closed Tuesday at $78, flat on the year to date but down from the 2014 high of $80.09 reached in March. Investors are still missing the big picture.
Management has telegraphed exactly why the stock remains a strong buy. Nervermind that Nike is an overly safe long-term play, the company now expects to return to growth. Investors looking for an iconic brand that also pays a strong 1.3% yield better jump in now.
Nike has been and always will remain a strong global brand. Although competition has heightened from Adidas (ADDYY) and Under Armour (UA), Nike management has outlined long-term growth strategies to suggest it plans to maintain its market share and seize share from the competition by growing in key areas.
Never shying away from pressure, management projects to grow fiscal 2015 revenue to $30 billion. The company also expects to grow revenue at an annual rate of 10% over the next two years, culminating in revenue of $36 billion for 2017.
In the process, Nike expects to produce earnings per share in the mid-teens. There is nothing conservative about these targets, especially when considering that Nike produced a modest 5% increase in earnings in the most recent quarter.
How do you suppose the company will reach these goals? There are several options but in my opinion only two will matter -- and Nike has expertise in both.
First, very few companies, even those in the realm of technology, can match Nike's innovative qualities. The company has spent the past couple of years figuring out ways to widen its lead over its rivals.
Nike has invested resources, working with manufacturers to produce high-performance materials to come up with products like knitwear shoes and its popular FuelBand, which (according to some) inspired the much-rumored iWatch that is due out this fall by Apple (AAPL).