Among the top consumer discretionary stocks, Nike (NKE) has a world-class brand and market share in the footwear and apparel space that's hard to come by.
In years past, this dynamic has led to a pretty sizable valuation premium, which many investors may have expected to remain in place. But with the rise of tariffs and other industry headwinds, this valuation premium has been degraded to a certain extent. Now, investors are left wondering if all the magic is gone for this iconic brand as competition continues to heat up in this space.
I'm not sure that's the case. Nike also has recent dynamics at play, such as a recent note that highlights a large $3 million purchase of NKE stock by Apple (AAPL) CEO (and Nike lead independent director) Tim Cook.
Let's dive into this purchase, and whether or not investors would do well to follow Tim Cook into this potentially undervalued name right now.
What This Purchase May Portend for NKE Stock
In my view, the move by Apple CEO Tim Cook to purchase NKE stock is indicative that there's some pretty decent alignment among some of the greatest investors in the game. Indeed, these investors may be starting to smell opportunity. Given Nike's rather dramatic recent decline of 15% on a year-to-date (YTD) basis (inclusive of a recent rally), that's the type of performance that could get some investors perking up in their chairs.
Why? Well, having a look at Nike's fundamentals, there's still a lot to like about this company's operating model. Tariffs and other operational headwinds aside, this is still a consumer discretionary stock with incredible pricing power. The ability to raise prices for special releases, or launch new investor-edition sneaker lines and upgraded apparel options, allows the company to generate outsized margins it can reinvest into its production and product development processes. That's the flywheel effect that has driven this business to the levels it has in recent years.
I'd expect these trends to continue, which should drive Nike's margins and overall earnings growth higher. If that's the case, NKE stock trading at around 35 times earnings could actually be a bargain.
What Do Analysts Think of Nike Right Now?
I tend to think that watching what influential investors and managers like Tim Cook are actually doing with their money is a better barometer of how a stock may perform over the medium term. That said, there's also value in assessing what analysts think about a particular name. After all, these are the ultra-intelligent analysts who cover these companies very closely, and adjust their models on a frequent basis.
Looking at Nike's consensus rating, it does appear that there's some meaningful upside to be had in investing in NKE stock on this recent dip. In fact, the consensus price target of $76.60 implies roughly 20% potential upside from current levels. Most investors would welcome such a move.
With a high price target of $120 on NKE stock, and a low target of $35 per share, there's clearly some wide divergence of opinions on where this stock could trend over time. And given the outsized price targets on the higher end, it's probably safe to assume that the median price target is likely lower than its mean (although that's what most in the financial community watch closely).
With that said, it's my view that over the long term, the implicit value that world-class brands like Nike can provide investors makes these recent dips worth buying. We'll have to see whether that will truly be the case a year or two down the line. But if I had to guess, I'd say this company could thrive once tariffs are removed by the next administration, or ruled away due to upcoming court decisions. Either way, at some point, the ongoing headwinds that Nike's management team are contending with will go away. So, it all depends how patient investors can be in waiting out this near-term choppiness.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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