If the Shoe Fits, Trade It? Nike Faces This Huge Risk Ahead
The stock has roared.
Now, one analyst is warning short-term investors against what he sees as heightened downside risk for the immediate.
Nike (NKE) reports earnings on September 24, and the athletic wear maker may very well meet or beat Wall Street expectations, but it's a currency headwinds that could threaten guidance that investors should watch out for. "Our estimates are being reduced (reported sales from ~+7.7% to ~+6.6%, EPS from $2.92 to $2.86; consensus +7.9%, EPS $2.90) to take into account the higher negative foreign exchange impact," Wedbush Securities analyst Chris Svezia wrote in a note out Tuesday.
With the stock up 19% year-to-date to $ 88.67 a share the potentially lowered guidance could spark a "negative share reaction."
The stock does trade at 26 times expected earnings for the next year, which is a "premium" valuation according to many analysts, premium to the company's historical valuation. But that could be justified if Nike to grow its China and Asia sales at 20% and above, supported by its strong direct-to-consumer business. Nike's DTC business, which has been growing at above 12%, is higher margin and involves a heavy dose of digital sales. That could continue for a while as Nike is rolling out its app in areas of Asia.
Last quarter, higher operating expenses offset a revenue beat, causing EPS to miss estimates. The growth of those expenses, related to the DTC business, should soon abate, supporting operating margins.
Case in point: the stock could trade down short-term, but the longer-term story is intact, a view widely held in the analyst community.
Premium Pick: Jim Cramer: Millennials Love a Bargain, and These Companies Know It
TheStreet Explains:What Are Tariffs and Why Do They Move the Market?
Subscribe to our Youtube Channel for more videos : Listen our latest Podcasts on Soundcloud
Catch Up: Today's Top News Videos Below
