There is no hiding that adidas AG (ADR) (OTCMKTS:ADDYY) has been the growth name in the athletic retail space over the last several quarters. (Simply look at Adidas and Nike Inc (NYSE:NKE) search interest trends to see evidence of this.)
The return of retro styles really thrust the Adidas 3-Stripe look into the fashion spotlight. Moreover, Adidas was able to fully capitalize on that trend because of their key urban area focus (the company focuses on dense urban areas, and that puts them right in the heart of where fashion trends are born).
The dynamic of Adidas constituting a bigger and bigger threat to Nike has weighed heavily on NKE stock. For many years, the stock was a darling of Wall Street. Viewed as a secular growth story, Nike stock seemed to always out-perform the broader averages.
But times have changed with the new Adidas threat. As Nike sales and future orders growth has slowed, NKE stock has turned into a range-bound stock. Over the past year, it has just bounced between $50 and $60.
After a strong Q4 report, which included confirmation that Nike is going start selling on Amazon.com, Inc. (NASDAQ:AMZN), NKE stock is now trading at the upper-end of that range. A quick look at the trailing 52-week chart might give investors a reason to sell NKE stock here.
But investors should pause on that thought. The story at Nike is completely changing, and so is Wall Street’s sentiment on the stock. Nike is once again turning into a darling of Wall Street. That means NKE stock could roar significantly higher.
Here’s why.
Nike Stock Has Many Game-Changing Catalysts
Morgan Stanley came out with a bullish note today on NKE stock. Pointing to potential for the Air VaporMax to be the company’s next $1 billion shoe, Morgan Stanley analyst Jay Sole upgraded NKE stock to “Overweight” and upped his price target to $68 (from $56). The note had one key line that I would like to highlight below:
“We think the window to buy Nike at the bottom of a cycle is closing.”
That sounds about right to me for many reasons. Over the past year, NKE has failed to break-out of this $50 to $60 trading range. Multiple operational catalysts, however, imply that NKE stock could break through the upper-end of this range. Considering how lackadaisical NKE stock has acted over the past year, a move to the upside could be quite big and quite fast.
Firstly, Morgan Stanley is right about the Air VaporMax. Its super popular. Both Finish Line Inc (NASDAQ:FINL) and Foot Locker, Inc. (NYSE:FL) positively highlighted Nike’s Air VaporMax shoe in its most recent earnings calls. FINL management said the Air VaporMax had a very successful launch, while FL management called the shoe an exciting new innovation. Moreover, search interest trends have remained strong post-launch as Nike continues to iterate with features like going laceless.
Secondly, NKE stock is really building out its e-commerce presence. That’s huge considering the seismic shift towards e-commerce sales that is happening right now.
Bottom Line on NKE Stock
Nike is starting to sell through Amazon.com, the most robust digital sales channel out there. Nike also reported that e-commerce sales rose 30% year-over-year last year. With the help of Amazon distribution, that 30% e-comm sales growth rate will likely be even bigger next year. As Nike starts to really nail its e-comm selling strategy, net revenue growth rates will start to look a lot better.
Thirdly, Nike is shifting its focus to key urban areas. Why is that a good thing? Well, key urban areas are global cultural centers. Emphasizing those markets puts the brand at the epicenter of fashion trends. This focus will streamline investment costs and make Nike products much more trendy in the eyes of consumers.
All in all, Nike has many catalysts over the next several quarters, which should stimulate growth and help NKE stock break above the upper end of its trading range.
Buy it and hold it. NKE stock has been depressed due to Adidas competition, but new strategic initiatives should stimulate growth and shoot NKE stock to higher levels.
As of this writing, Luke Lango was long NKE, FL and FINL.
