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Could Nike Stock be Oversold, But Still Overvalued?

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Nike (NYSE:NKE) stock is approaching its 52-week low made in July. That’s presenting an interesting dilemma for investors. On the one hand, if the stock holds the July lows as a support level, a technical case can be made that NKE stock is oversold.

On the other hand, a weakening economy backed up by slowing earnings and revenue growth suggest that there may not be room in consumer’s holiday budgets for the company’s premium footwear and athletic gear. That would suggest that NKE stock could still be overvalued.

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Could the answer be both? And if it is what are investors to do about NKE stock? Those are the questions we’ll be looking at in this article.

Will Nike’s Nod to Authenticity Work?

Since I’m not a sneakerhead, Ben Schott’s article for Bloomberg was news to me. Specifically, that Nike has launched its NikeCraft x Tom Sachs General Purpose Shoe. The iconic company’s message was:

“Your sneakers shouldn’t be the most exciting thing about you. They are tools, and what matters about your tools is that they work. They do their job so you can do yours. You put them on and forget about them.”

And yet, those tools carry a hefty $109 price tag. But that could be considered a discount because with NIke it’s all about the swoosh. And these shoes still carry that cache.

The success (or lack thereof) of this campaign may say a lot about the near-term direction of NKE stock. I recall back in the early 1990s, Cadillac tried to pitch a “downstream” sedan called the Catera to a younger market. But as an auto dealer told me the strategy backfired because the Catera attracted some of the older (and higher margin) buyers who paid cash for the Catera instead of buying the pricier legacy models.

Could the same situation be on tap with Nike? I’m not sure. It seems to me the shoes could turn into collectibles. Or they could cannibalize from the company’s higher-priced offerings. Either way, I’m skeptical about their appeal as casual footwear for the everyman.

The Fundamentals May Improve

Ok, enough of the cynicism. Let’s get down to some numbers. The problem for Nike is that in the last two quarters, it has posted lower year-over-year revenue and earnings. Let me be clear. The company has beaten analysts’ estimates in both quarters, but the numbers are lower than the same quarter in the prior year.

What does that mean? The answer to that question is why stock picking is as much art as it is science. As Matthew North wrote, Nike has an advantage in bothmargins and profitability. It leads me to believe that some of its total customer base is peeling off, but the die-hard brand loyalists continue to support the brand.

And the company is expected to show high single-digit growth in revenue and double-digit growth in earnings over the next five years. But that could be pulled back if the company lowers its guidance.

Should Investors Just Buy It?

In a volatile market like this, Nike falls into an interesting category. It’s a company that has pricing power, but it’s products may not quite rise to that “gotta have it right now” level like Apple (NASDAQ:AAPL) and it’s iPhone.

But then again, I’m not a sneakerhead. And that’s where I can allow myself to listen to a bullish argument. Because it’s always more important to pay more attention to what the consumer does (which is a lagging indicator) over what the consumer says (which is a leading indicator).

NKE stock is getting down to an attractive level and although the dividend is not particularly impressive the company has been increasing it for 21 years.

Should you invest $1,000 in NIKE right now?

Before you consider NIKE, you'll want to hear this.

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Article by Chris Markoch, MarketBeat