Nike Signals Bearishness As Competitors Gain Market Share
The shares of Nike Inc (NKE), the leading manufacturer of high-quality athletic footwear, gained about 30% last year to hit a high of $68.19 in December, 2015. However, in the past two months, there is no considerable gain in the share price. In fact, the short-term weakness persuaded Vetr top raters to downgrade Nike by giving only 2.5 stars out of five.
Fundamentally, the company delivered good results in the second quarter of fiscal 2016. Nike reported revenue of $7.7 billion, up 12% on a currency neutral basis. The company recorded earnings per share (EPS) of $0.90, beating analysts’ estimates of $0.86 per share. The footwear and apparel company, which has a market capitalization of $100 billion, achieved strong growth in North America.
However, it was offset by poor performance in the European markets. For the fiscal 2015, revenues from China were $3.17 billion. In spite of these positive features, the share price has started declining.
Bloomberg Business
Nike faces a tough competition in the footwear segment, which contributes to 65% of the company’s revenue. For the week ending January 30, 2016, the athletic footwear sales of Nike declined 9.1% when compared to the year ago corresponding period. On the other hand, Adidas registered a 24.1% rise in sales. More astonishingly, Under Armour’s sales increased a whopping 70.5% in the same period, when compared to last year.
The trend continued in February as well. For the week ended February 20th, 2016, Nike’s athletic footwear sales increased 8.2%, when compared to the prior year similar period. For the same period, Under Armour’s sales rose by a staggering 97.6% from a year earlier. The behemoth enterprise Nike is certainly expected to fare better than newer and relatively unknown brands such as Under Armour, considering the brand popularity and competitive advantages. However, the fact that Nike is quickly losing market share has put the stock on a declining note.
Furthermore, on January 29th, 2016, Mark G. Parker, the CEO of Nike sold 20,700 shares at an average sale price of $62.12. The stock currently trades at forward price to earnings ratio of 25.3, which is slightly higher than the prevailing industry average of 18.36. The price to book ratio of Nike is 7.9, while the industry average is 6.0. The price to sales ratio of 3.5 is above the industry median of 1. All these factors have led to a fall
in the stock’s price.
Technically, as shown in the image below, the stochastic indicator with a reading above 80 reflects an overbought state. The MACD indicator’s main line has crossed below the signal line, thereby indicating an increase in the selling pressure. Major support exists at 59-levels.
Thus, a short-term decline is imminent in the stock. So, a binary options trader can purchase a put options contract with mid-March expiry. The suggested strike price for the put options contract is $59.
