Consumer Products

The 2016 Bullish and Bearish Case for Nike

Nike Inc. (NYSE: NKE) absolutely exploded out of the gate in 2015. It is already the world’s leading designer, marketer and distributor of athletic footwear, apparel and equipment. To top this off, Nike was also the top-performing Dow component in 2015. The question is whether this company can have a repeat performance in 2016.

Now that 2015 has ended, 24/7 Wall St. is taking a closer look to what the strategists and analysts on Wall Street expect for the stock market in 2016. As we all know, the bull market was interrupted in 2015, and the Dow Jones Industrial Average closed out the year down 2.2% to 17,425.03. That may be hardly a reason to call a bear market ahead, but it follows six straight years of gains.

While the index performance of the Dow does not account for individual stock dividends, Nike closed out 2015 at $62.50, as the top Dow performing stock, with a gain of 31.4%, including its dividend adjustments.

For the year ahead, the consensus analyst price target from Thomson Reuters is $72.56. If the analysts are correct, the expected total return for Nike would be 18.2%, if you include its dividend yield of 2.1%.

This year has gotten off to a very bumpy start, and Nike shares were trading at $61.06 just a few days into the year.

In the broad sense, Nike benefits from consumer preferences for “athleisure.” With the company’s extensive product line and recognizable worldwide branding, the stock continues to roll year after year. Driven by its digital business as well as inline and factory stores, the company now anticipates achieving $16 billion in revenue by the end of fiscal year 2020.

Over the next five years, incremental growth in its Brand Direct to Consumer revenues is expected to be driven by e-commerce sales, which are projected to grow to $7 billion. Nike also expects to drive wholesale growth in the mid-to-high single-digit range over the next five years.

Nike’s strength is being driven by worldwide store growth and the introduction of new footwear. Both trends are helping Nike to keep increasing its market share.

The independent research firm Argus weighed in on Nike’s prospects as well:

Nike is working to boost results in China by dropping retail partners with disappointing sales and by diverting inventory to other markets. We believe that its business in China will recover, and note that revenue in China rose 28% in constant currency in the second quarter of 2016… Over the long term, we expect Nike to continue to dominate the athletic apparel and footwear market, and note that it has a particularly strong presence in high-end footwear thanks to its marketing strength and endorsements from famous athletes… Although the industry remains fiercely competitive, we expect the company to build on its dominant position through its globally recognized brand, innovative products, economies of scale, and rapid growth in emerging markets.

Nike completed a two-for-one stock split in December, allowing for more retail investors to pile into the stock. Also the company initiated a $12 billion share repurchase in 2015 that will take place over the next four years, driving up value and returning capital to shareholders.

The big thing to look out for with Nike is currency fluctuations. This past year everything went Nike’s way with the strengthening dollar supporting its sales, but this might not be the case in 2016 and investors should be mindful.

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