With shares of Nike (NYSE:NKE) trading around $61, is NKE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Nike is engaged in the design, development, and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company sells its products to retail accounts, through retail stores and Internet sales, and through a mix of independent distributors and licensees around the world. Nike focuses its product offerings in seven key categories: Running, Basketball, Soccer, Men's Training, Women's Training, Nike Sportswear and Action Sports. It also markets products designed for kids, as well as for other athletic and recreational uses. Looking around, many consumers and companies are advocating and opting for a lifestyle with increasing outdoor and physical activity time. As the staying active and fitness movement sees progress, Nike is a company that is poised to see rising profits.
T = Technicals on the Stock Chart are Strong
Nike stock has been on an explosive bullish run over the last several years. The stock is now consolidating near all-time high prices so it may need time before making a run. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nike is trading between its rising key averages which signal neutral price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Nike options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Nike Options | 32.83% | 96% | 95% |
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| July Options | Flat | Average |
| August Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Improving Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nike’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nike look like and more importantly, how did the markets like these numbers?
| 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | |
| Earnings Growth (Y-O-Y) | 58.33% | -16.00% | -9.56% | -5.42% |
| Revenue Growth (Y-O-Y) | 9.39% | 7.37% | 9.67% | 21.97% |
| Earnings Reaction | 11.06% | 6.16% | -1.12% | -9.39% |
Nike has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been upbeat with Nike’s recent earnings announcements.
P = Average Relative Performance Versus Peers and Sector
How has Nike stock done relative to its peers, Under Armour (NYSE:UA), Crocs (NASDAQ:CROX), Deckers Outdoor (NASDAQ:DECK), and sector?
| Nike | Under Armour | Crocs | Deckers Outdoor | Sector | |
| Year-to-Date Return | 19.22% | 19.97% | 10.35% | 28.09% | 17.84% |
Nike has been a relative average performer, year-to-date.
Conclusion
Nike provides widely demanded athletic apparel and footwear in a time where this trend is exploding. The stock has been on a powerful run higher but is now digesting gains and may need time before continuing. Over the last four quarters, investors in the company have been upbeat as earnings have improved while revenue figures have been rising. Relative to its peers and sector, Nike has been an average performer, year-to-date. Look for Nike to OUTPERFORM.
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