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Why Nike, Inc. Stock Is Up 16% So Far This Year

By Jeremy Bowman – Jul 20, 2017 at 4:52PM

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It's been an up-and-down year for the Swoosh, but for now it's ahead of the pace.

What happened

In a volatile year for the sneaker giant, shares of Nike, Inc. (NKE 3.64%) have climbed 16% through July 20, according to data from S&P Global Market Intelligence. The stock has gained recently thanks to a strong fourth-quarter earnings report in June and a new partnership with Amazon.

The new Jordan store in Beijing

Image source: Nike.

As the chart below shows, however, there have been plenty of setbacks along the way:

NKE Chart

NKE data by YCharts.

So what

After a lackluster performance in 2016, Nike shares rose out of the gate this year, riding a bullish wave in the market in anticipation of Donald Trump's presidency. Shares then gained 4% over a two-day span in February as Nike debuted a number of special-edition sneakers at New York's Fashion Week.

However, the stock gave back those gains following its third-quarter earnings report in March, as the company reported another quarter of slow revenue growth. Revenue rose just 5% in the quarter, or 7% in constant currency to $8.4 billion, falling short of estimates. Gross margin also dropped 140 basis points as the company dealt with higher product costs. Earnings per share, however, increased 20% to $0.68 thanks to lower advertising expenses and a lower tax rate, but Wall Street overlooked that as concerns about top-line growth have been dogging the stock for a while. Shares fell 7% on the news.

Shares tanked again in mid-June, falling 7% over a two-day span when the company said it would restructure, cutting 1,400 jobs, as it launches its Consumer Direct Offense strategy.

Finally, the stock surged on the year-end earnings report at the end of June, as the company beat estimates and confirmed that it would start selling directly on Amazon, reversing a long-held position. Revenue increased 5% again in the quarter to $8.7 billion, but that was enough to beat estimates. Earnings per share in the period were up 22% to $0.60.

Now what

Nike has shown time and again that it's a mistake to bet against it. Though the company may be losing share at home to Adidas, its plans to speed up innovation and double down on direct-to-consumer selling should enhance performance. Just today, Nike moved higher after scoring an upgrade from Morgan Stanley, which sees accelerating sales pushing the stock higher thanks to new products like the Air VaporMax.

I wouldn't expect explosive growth from Nike anytime soon, but the stock remains a solid bet.

Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends AMZN and Nike. The Motley Fool has a disclosure policy.

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