What happened
Shares of shoe retailing giant Nike (NKE -0.20%) are trading higher this morning. After racing up by nearly 7% in early trading, shares held a gain of 4.1% as of 11:20 a.m. ET. Even after paring that initial increase, the share price bump represented an increase in market cap of about $8.5 billion.
So what
That valuation boost from investors came after the company reported its fiscal 2022 third-quarter results last night. Nike beat estimates for its quarterly period, ended Feb. 28, with earnings of $0.87 per share on $10.9 billion in revenue. Analysts on average expected $0.71 in earnings and $10.6 billion in revenue, according to Refinitiv. Perhaps most importantly, the company said sales declines in China have eased, and price realization has improved year over year there.
Image source: Getty Images.
Now what
Over the last nine months, Nike sales have grown 7% compared to the prior-year period, while its cost of sales increased only 3%. Revenue growing faster than costs continued in the most recent quarter. Even with that positive underlying business trend, however, Nike shares have dropped nearly 20% so far in 2022.
That's because investors don't like uncertainty, and there has been plenty of that for many international companies due to supply chain challenges, political friction between China and the U.S., and Russia's invasion of Ukraine.
China is particularly impactful for Nike as one of its most profitable regions. Sales in China had dropped 24% year over year in the prior quarter, but that improved to a drop of 8% in the most recent quarter.
Investors who are seeing more clarity in Nike's China business, as well as much stronger positive sales growth in its other regions, are now seeing the year-to-date drop in the stock price as a good opportunity to buy.
