Nike logo. Image: Nike.

At its investor day on Oct. 14, Nike (NYSE:NKE) announced that it now forecasts reaching $50 billion in annual total sales by 2020, which would be a 63% increase over fiscal year 2015 sales. One way the company plans to reach such a lofty revenue growth goal is a massive increase in online sales during that time, jumping online sales from about 4% of total sales in 2015 to 14% of sales in 2020. Here's how Nike plans to increase online sales sixfold within five years, and why this matters for more than just the revenue growth.

Innovations driving e-commerce growth
Digital innovations are affecting Nike's e-commerce, not only on but also in stores. One such way is Nike's success with putting point-of-sale tablets in its stores so that when an item isn't available in store, a clerk can still help the customer to quickly purchase the item online to be shipped to the customer's home. This approach seems like it could have the added benefit of getting more sales, as clerks can walk around to be more personable and then close the sale immediately, while taking out some of the registers will free up more space that can instead be used for more sales-floor space. The service is now available all over the U.S., and Nike is working to make this service available at more locations globally. 

Nike has also been busy upgrading its mobile shopping experience. Mobile now accounts for more traffic than desktop for Nike, and Nike is taking advantage of that growth with new apps and a better all-around mobile experience.  

"We saw increases in both traffic and conversion, fueled by our investments in critical infrastructure to improve the consumer experience on both desktop and mobile, and as I mentioned last quarter, our traffic on mobile has exceeded traffic on desktop, making it a very sharp point for consumer engagement going forward,"  said Nike CEO Mark Parker on the fiscal 2015 year-end earnings conference call

Nike's new SNKRS app for creating and buying Nike shoes. Image:

$1.2 billion to $7 billion by 2020
Nike drove fiscal 2015 online sales to nearly $1.2 billion, a 55% increase over fiscal 2014. However, this is only the start, as Nike forecasts that it will increase those sales sixfold in the next five years to reach $7 billion by 2020. Improvements to, the mobile shopping experience, and the addition of point of sale e-commerce tablets in stores, will play a big part in helping Nike to increase online sales, but another major factor will be continuing to roll out in other countries where other Nike brand stores or reliable third-party sellers may not be available.  

Why this matters
One reason this surge in online sales is so important to Nike investors is not just that it will help the company realize its sales goal of $50 billion, but also that it will help to grow Nike's earnings at an even faster rate than regular sales growth, as online sales provides higher margins than sales through third-party channels.

NKE Gross Profit Margin (TTM) Chart

NKE Gross Profit Margin (TTM) data by YCharts

Is it time to buy Nike?
Nike stock isn't cheap today, after its share price has jumped 40% in the past year and is now trading at nearly 35 times earnings. Is it still a buy or overpriced?

Consider that by fiscal 2017 earnings estimates, the company is priced at only 26 times earnings. Let's look even further: The $50 billion revenue estimate at the current profit margin of around 11.25% makes for a fiscal 2020 income of $5.625 billion, or a P/E of just 15 at the current price. That already looks very bullish for long-term investors who believe Nike can realize these forecasts. However, with the growth of online sales accounting for a larger share of total revenue, margins are likely to be pushed even higher, making those 2020 earnings and P/E estimates even more attractive. 

Bradley Seth McNew owns shares of Nike. The Motley Fool owns shares of and recommends Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.