Nike stock is up 26% YTD. Should I invest?

Nike stock is up 26% YTD. Should I invest?
Written by:
Stanko Iliev
12th November, 21:54
Updated: 12th November, 22:02
  • With a $198B market capitalization, this stock is overvalued and maybe it is not the best moment to buy NKE
  • Nike will reduce its workforce by ~700 in response to the pandemic's ongoing effect
  • RBC Capital Markets hiked its price target on Nike to $145

This stock has been one of the market’s biggest winners in the last several months. The price of Nike (NYSE: NKE) stock has advanced from $86 above $130 in less than six months and the current price stands around $126.

Fundamental analysis: The risk/reward ratio is not good currently for the long-term investors

Nike shares have been moving in an uptrend last several months and for now, there is no signal of the trend reversal. Nike is an American multinational corporation that is the world’s largest supplier of athletic shoes and apparel.

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In 2020 the brand alone was valued in excess of $32 billion, making it the most valuable brand among sports businesses. Even with the COVID-19 pandemic, the sale of Nike products is going well but the company will permanently reduce its workforce by ~700  in response to the pandemic’s ongoing effect.

Analysts expect that the sale will continue to grow and it is important to mention that RBC Capital Markets hiked its price target on Nike to $145. This is above the average Wall Street PT of $144.54 but the risk/reward ratio is not good currently for long-term investors.

“We see NKE as a best-in-class global athletic play, with its Consumer Direct Acceleration strategies supporting a multi-year mid-high teens EPS CAGR through FY26. While the shares at 35x suggest that NKE’s strong fundamentals are well appreciated, we believe FY21/22 can see EPS upside as recovery from COVID-related disruption comes through faster and as gross margin comes in better,” updates analyst Kate Fitzsimons.

At its current share price, Nike could be a very good short-term investment with solid growth prospects. I said short- term investment because with a $198B market capitalization this stock is overvalued in my opinion and represents opportunity only for short-term traders.

Profitability ratios also confirm this, P/E is above 40 which confirms that this stock is expensive. There are also some obvious risks when it comes to trading Nike (NYSE: NKE) shares and the price could weaken in the upcoming weeks.

Technical analysis: Bulls are in control of the price action

Data source: tradingview.com

When we take a look at the chart above ( one year period), we can see that the price of this stock has advanced from $60 above $130. As long the price is above this trend line this stock is in the “buy” zone and there is no indication of the trend reversal.

If the price falls on the trend line and if we get a “bullish” confirmation candle it would be a very good entry point for short-term traders who are trading with “stop-loss” and “take profit” orders. The trend line represents a very strong support level, if the price breaks this trend line it would be a very strong “sell” signal and we have an open way to $110.

If the price jumps above $130 it would be a signal to buy Nike stock and we have the open way to $140. Rising above $140 supports the continuation of the bullish trend and the next price target could be located around $150.

Summary

Nike shares have been moving in an uptrend last several months and for now, there is no signal of the trend reversal. Even with the COVID-19 pandemic, the sale of Nike products is going well but the company will permanently reduce its workforce by ~700  in response to the pandemic’s ongoing effect. RBC Capital Markets hiked its price target on Nike to $145 but the risk/reward ratio is not good currently for the long-term investors. With a $198B market capitalization, this stock is overvalued in my opinion and maybe it is not the best moment to buy Nike shares.

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