Can Nike Continue This Bull Run?

With shares of Nike (NYSE:NKE) trading around $66, 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.

Recently, Nike delivered earnings and revenue figures that beat Wall Street’s expectations. Looking around, many consumers and companies are advocating and opting for a lifestyle that involves more outdoor and physical activity. As this movement continues, Nike is a company that is poised to see increased demand.

T = Technicals on the Stock Chart are Strong

Nike stock has been flying higher over the last several years. The stock is now trading near all-time high prices and does not look like it wants to slow down. 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 above its rising key averages which signal neutral to bullish price action in the near-term.

NKE

(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

19.28%

36%

34%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September 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 small 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

24.52%

58.33%

-16.00%

-9.56%

Revenue Growth (Y-O-Y)

7.39%

9.39%

7.37%

9.67%

Earnings Reaction

2.18%

11.06%

6.16%

-1.12%

Nike has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been upbeat about 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

28.82%

42.55%

-0.14%

46.73%

22.61%

In a very strong sector, Nike has been an average performer, year-to-date.

Conclusion

Nike provides athletes and beginners alike with athletic and fitness footwear, apparel, and related products. The company recently reported earnings that has sat well with investors. The stock is currently consolidating near all-time high prices and looks poised to head higher. Over the last four quarters, investors in the company have been upbeat as earnings have been improving while revenue figures have been rising. Relative to its very strong peers and sector, Nike has been an average year-to-date performer. Look for Nike to OUTPERFORM.

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