Nike isn't a sell, let alone a "Strong Sell"
I hadn't been following NKE until I came across Eddy Elfenbein's latest article titled "Nike is a Strong Sell."
After about 30 seconds of reading, I immediately decided I disagreed with him, and after a few more minutes of research, I'm starting to think it's actually a decent buy at these prices.
Per the last earnings report, quarterly revenue was up 12% (Elfenbein states in his blog that revenue "plunged" 12% - not sure how he missed that one). Net income dipped from $590MM to $550MM, but $24MM of that was a write down. The non GAAP EPS miss wasn't as bad as the $0.20 miss that Wall Street blew out of proportion.
The slight slip in margins doesn't worry me too much - its not uncommon for a company to sacrifice short term profits to grab market share in new markets, which Nike is frantically trying to do in SE Asia. Coke is notorious for doing this.
3 year revenue growth is clocks in at 8%; 5 year growth at 6%. Assuming revenues correlate with earnings over the long term, I think growth at these levels easily warrants a PE of 20+. If you back out the $3B in cash on NKE's balance sheet, the current PE is well under 20. If the company grows at 5% for the next 10 years, the company is arguably fairly valued. If growth exceeds 5%, it's undervalued at these prices.
The technicals look a little weak - the stock recently fell through the 50 day, 200 day, and 50 week SMAs. If the stock continues to fall, I might add a position.
I typically love reading Crossing Wall St, but I think he's a bit off base saying he's not a buyer until it hits $70 - I don't think it will ever get there...