(C) Reuters. Nike Stock: Bargain Value After Drop?
ADDYY and NKE stock are now down around 21% and 16%, respectively, off their recent all-time highs.
Undoubtedly, Adidas and Nike are two high-quality companies behind legendary brands. Their respective managers are exceptional, as too are their growth stories.
COVID-19 headwinds will abate, and supply chains will return to order in due time. The real question is when supply chain disruptions will resolve, and whether such pandemic-induced disruptions will be intermittent, as lockdowns have been.
In any case, I am incredibly bullish on both companies, especially Nike. (See NKE stock charts on TipRanks)
Supply Chain Woes May Be Overblown
Demand for footwear and other athletic apparel is still robust. Given supply constraints, it will be tough to meet such demand going into the holiday season. Still, demand is unlikely to fade just because supply is tighter.
If anything, the strong surge experienced in the first half of 2021 could continue at some point down the road. Any pent-up demand could fuel a blowout quarter at some unknown point over the next few years.
In the meantime, though, the quarters for Nike and Adidas are going to be ugly. However, they are likely to mask the magnitude of actual demand for their products. Indeed, much demand will go unmet, but for those with enough patience, both names could prove to be an incredible bargain here.
Long-term drivers still at play
Nobody knows when the pandemic-induced supply constraints will weigh down Nike and Adidas. Regardless, long-term investors who focus on the next several years instead of coming quarters could have the most to gain.
Nike and Adidas have profited profoundly from their e-commerce efforts. The Direct-to-Consumer (D2C) story is a long-term one, and it’s still very much in play. As each firm cuts out the middleman, margins and sales are likely to continue on the uptrend.
Moreover, loyalty programs and easy return policies should further bolster digital strength, and apply additional upward pressure on margins. Whether Nike opts to pass the savings onto consumers to beef up sales remains to be seen. In any case, expect Nike to find the optimal balance between margins and sales at some point down the road.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, NKE stock comes in as a Strong Buy. Out of 22 analyst ratings, there are 19 Buy recommendations and three Hold recommendations.
The average NKE price target is $185.14. Analyst price targets range from a low of $160 per share, to a high of $213 per share.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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Nike Stock: Bargain Value After Drop?