Nike: Growth Company with Big Market Opportunity

Nike (NKE) is still a growth company with plenty of market opportunities ahead, according to its Executive Vice President and Chief Financial Officer Matt Friend. Friend made this statement following Read More... The post Nike: Growth Company with Big Market Opportunity appeared first on TipRanks Financial Blog.

Nike: Growth Company with Big Market Opportunity

Nike (NKE) is still a growth company with plenty of market opportunities ahead, according to its Executive Vice President and Chief Financial Officer Matt Friend.

Friend made this statement following the release of the company's Q1 financial results, praising the company's Consumer Direct Acceleration Strategy: "NIKE is a growth company with a market opportunity as large as it's ever been," he said. "Our Q1 results illustrate how NIKE's Consumer Direct Acceleration strategy continues to fuel growth and transform our long-term financial model."

Last year, Nike changed its business strategy. It shifted from an indirect to a direct business model, cutting off the middlemen. That helped the athletic apparel company raise its operating margins from around 8 percent in May 2020 to 15.5 percent in the most recent quarter.

I am bullish on Nike stock. (See Nike stock charts on TipRanks)

Solid Performance at Nike

Nike had a solid Q1. Revenues grew 12 percent, led by NIKE Direct growth and the normalization of owned physical retail, which grew 24 percent, surpassing the pre-pandemic levels from the first quarter of fiscal 2020. Meanwhile, NIKE Brand Digital business showed continued strong growth, increasing by 25 percent, led by North America growth of 43 percent.

Nike's results would have been even better if it weren't for global supply chain bottlenecks. "While Nike closed FY2021 with record revenue numbers, the COVID-19-related global supply chain issues have tested the brand this past quarter. Nike was forced to shutter factories in Vietnam in July due to COVID-19 outbreaks, which could put a damper on sales heading into the rest of the year," said Ms. Mousumi Behari, Digital Strategy Practice Lead at Avionos.

Nike's Advantage: Connection with Customers

Nike has many competitive advantages, including branding, scale and scope, customization, and innovation. All of its advantages can be summarized in one: customer connections. "NIKE's strong results this quarter are continued proof of our deep consumer connections, unrelenting innovation pipeline and a digital advantage that fuels our brand momentum," said John Donahoe, President and CEO, NIKE, Inc. "We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of sport."

Wall Street has taken notice. Nike has been a stellar performer. Over the last ten years, the company has delivered an average annual total return of 23 percent, compared to 16 percent for the S&P 500.

The Analysts' Take

Nike has a strong following in the analyst community. In the last three months, 24 analysts followed its shares with a Strong Buying rating, with an average price target of $186.04 over the next 12 months, and a high forecast of $213.00 and a low forecast of $168.00. The average Nike price target represents a 23.95% change from the last price of $149.59.

Bottom Line

Nike sees plenty of opportunities ahead, and it is well prepared to exploit them, delivering superior returns to its stockholders.

Disclosure: At the time of publication, Panos Mourdoukoutas had a position in Nike.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Nike: Growth Company with Big Market Opportunity appeared first on TipRanks Financial Blog.

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Luckin Coffee: An Unlucky Investment?

Chinese coffee chain Luckin Coffee (LKNCY), a company with negative margins, shouldn’t be trading at a higher multiple than Starbucks (SBUX), according to Quo Vadis president John Zolidis. I am Read More... The post Luckin Coffee: An Unlucky Investment? appeared first on TipRanks Financial Blog.

Luckin Coffee: An Unlucky Investment?

Chinese coffee chain Luckin Coffee (LKNCY), a company with negative margins, shouldn’t be trading at a higher multiple than Starbucks (SBUX), according to Quo Vadis president John Zolidis.

I am bearish on this stock. (See Luckin Coffee stock charts on TipRanks)

Disconnect between Market Valuation and Fundamentals

Zolidis, who sounded the alarm early about the ailing chain’s woes, made this comment following LKNCY's filing of a 10k for 2020 and settling of various lawsuits. At the same time, the company did not provide any quarterly P&Ls.

“The bottom-line is that LKNCY is currently valued by the market at $5B, which is roughly 5x our 2022 revenue estimate,” Zolidis said. “This is despite the fact that 2020 EBITDA margins were negative 39%. Even if we take the best quarter of 2020, we estimate a RLM of 1% and an EBITDA margin of negative 20%. Also worth noting, LKNCY burned through $1.1B of fraudulently acquired funds in 2019 and 2020.”

Luckin has no analyst following on Wall Street. TipRanks assigns a Smart Score of 5 to the company, citing decreased hedge fund activity, low investor and blogger sentiment, and lack of fundamental and insider data availability.

Meanwhile, TipRanks cites the rise of risks surrounding the company. The company has cited a total of 101 potential risks.

A Change in Strategy

For years, the Beijing-based coffee chain was opening coffee shops at a feverish pace, trying to match and surpass industry leader Starbucks.

The problem is that the two companies have different store concepts. Starbucks' store concept is the “third place,” a comfortable place where people can enjoy mixed espresso drinks with friends and associates away from home and work. This store setting makes the demand for Starbucks products inelastic, meaning that it can charge a premium price for its products over the competition and maintain profitability.

Luckin’s store concept is “coffee to go,” where people can pick up coffee. Unfortunately, this setting makes the demand for its products elastic, meaning that it cannot charge premium prices for its products and maintain profitability. That’s at the root of the company’s woes.

To turn things around, its leadership has been closing down its worst-performing stores, scaling back on promotions, and reducing operating expenses. While this is the right strategy, Zolidis thinks it won’t work. “Customer transactions fell at a double-digit rate every quarter in 2020,” he says. “Has this continued into 2021? Covid is probably not helping a business that chose to put most locations in office towers.“

While he thinks that Luckin’s strategy won’t work, he’s still concerned about the company’s valuation going forward. His model suggests that Luckin gets a positive EBITDA by 2023, but he thinks it doesn’t make sense for a business with this financial profile to trade at a higher multiple than Starbucks or Shake Shack (SHAK).

Bottom Line

In short, Luckin is a money-losing coffee chain with a high market valuation in search of a strategy for its survival. Investors chasing after its shares should be reminded that hype is never a good substitute for due diligence.

Disclosure: At the time of publication, Panos Mourdoukoutas had no position in Luckin Coffee.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Luckin Coffee: An Unlucky Investment? appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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