Monday, October 28, 2013

Will Recent Earnings Send Nike on Another Run?

With shares of Nike (NYSE:NKE) trading around $73, 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.

Nike shares are up this morning as Nike's fiscal first-quarter earnings topped expectations, posting a 34.4 percent growth to 86 cents a share. Analysts had estimated that figure would be 78 cents. Revenue grew 4.5 percent to $6.97 billion. Nike reported strong sales in the U.S. and internationally, but sales in China slipped. Basketball, running, soccer, and men's training equipment sold particularly well during the quarter.

T = Technicals on the Stock Chart Are Strong

Nike stock been surging higher in the last several years. The stock is currently trading at all-time high prices and looks poised to continue. 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.


(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.

Top 10 Value Companies To Buy For 2014

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Nike Options




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

October Options



November Options



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 Increasing 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Nike has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been excited about Nike’s recent earnings announcements.

* As of this writing

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?


Under Armour




Year-to-Date Return






Nike has been an average relative performer, year-to-date.


Nike provides athletes and beginners alike with athletic and fitness footwear, apparel, and related products. The company has just announced earnings that have really pleased the markets. The stock has been flying higher in recent years and is now trading near all time high prices. Over the last four quarters, earnings and revenues have been rising, which has left investors excited about the company. Relative to its peers and sector, Nike has been a year-to-date performance leader. Look for Nike to continue to OUTPERFORM.

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