Nike Jumps on Strong Earnings…Too Late to Buy? Nike (NYSE:NKE) got some serious air on Friday. On the strength of a stellar quarterly performance, the stock gapped up 15.5% to a fresh record high i...

Nike (NYSE:NKE) got some serious air on Friday. On the strength of a stellar quarterly performance, the stock gapped up 15.5% to a fresh record high in more than six times the average volume.

The big leap propelled Nike from the back of the Dow-30 pack in 2021 and has helped the index to a 13.5% year-to-date return. It was an emphatic reminder that investors should never count the sneaker and apparel giant out of the race.

In investing it's a marathon rather than a sprint. So, despite the recent rally, Nike may have plenty more in the tank. If history repeats itself, the stock may be just warming up for yet another a long-term run.

What Did Nike Report for Fiscal 2021 Q4?

To say Nike's fourth quarter results were of blowout proportions may even be an understatement. Earnings per share came in at $0.93 compared to the $0.51 consensus expectation. The company also beat by a mile on revenues which nearly doubled to $12.3 billion.

The most exciting aspect of the top line performance is that direct sales rose 73% and accounted for more than one-third of overall sales. This showed that Nike's investments in its direct-to-consumer (DTC) retail and digital channels are paying off big-time.

Another comforting highlight was that growth rebounded across all major geographies. Sales in the all-important China market leapt 17% and North America continued to stage a strong recovery.

Better yet, Nike's gross margin expanded 850 basis points to 45.8% thanks to the surge in high margin digital sales and lower inventory reserves. You simply couldn't have asked for a better performance to close out the fiscal year.

Nike didn't stop there. Management continued to wow the market with a bullish outlook for fiscal 2022. It said it expects full year revenue of $50 billion on the strength of its surging digital platform.

What are Nike's Growth Drivers?

At the core, Nike will continue to derive growth from its incredibly powerful brand name. The globally recognized swoosh logo is a money-making machine that keeps cranking out new products. Consumers don't mind paying a premium for Nike apparel and footwear, so the company is able to raise prices virtually at will.

As we learned in fiscal 2021, Nike's biggest growth driver is its DTC channel. The pandemic has sped up our affinity for shopping online and Nike's website is seeing a ton of traffic. Continued investments in technology and customization as well as company-owned stores should help Nike form an even stronger bond with its consumer base.

The days of Nike leaning on its massive mall-based retail network are winding down. Soon it will become a digital first business. That is where consumers and heading and Nike is right alongside them. By 2025, the Nike Direct business is forecast to account for 60% of overall sales.

Beyond the DTC channel, Nike will continue to assert its market leadership to find growth in faster-growing developing nations in Asia, Europe, Latin America, the Middle East, and Africa. China will be the key market to watch given the fact it comprises around 20% of overall revenue and is Nike's fastest-growing business.

Is Nike Stock Still a Buy?

Hindsight is surely 20-20 on this one, but you can still envision Nike trending higher. The last time daily volume spiked above the 40 million mark (June 2017), the stock gapped up and climbed another 22% over the next 12 months. It then gapped higher again in June 2019 in route to another post-earnings run. So, if you believe history has a way of repeating itself, the June 2021 gap up is a good omen.

In terms of valuation, Nike is reasonably valued. It is going for 37x forward earnings which is well above the peer group average. However, the stock certainly deserves a premium multiple on account of its growth profile. It fits the mold of a fairly valued, blue chip growth company.

On the heels of Nike's quarterly report and outlook, sell-side analysts have been quick to raise their target prices and the vast majority have maintained 'buy' ratings. A few of the targets are in the $200-plus range while others suggest more modest upside.

A strong possibility in the months ahead is that Nike enacts another two-for-one stock split. It has done so on six occasions dating back to October 1990. The most recent one was December 2015, and with Nike's share price on a similar trajectory since then, a split is overdue. That means that investors that prefer to clear the psychological hurdle of a lower-priced stock could get their chance to buy at a split-adjusted $70 to $80 per share.

Whether you buy now or wait for a potential split, jumping in at current levels is a winning trade if you're a long-term investor. Few companies are in as good of shape as Nike. Expect more championship-caliber returns ahead.

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