This stock has been one of the market’s biggest winners in the last several weeks. The price of Nike (NYSE: NKE) stock has advanced from $112.4 above $130 in less than twenty days and the current price stands around $129.
Fundamental analysis: The risk/reward ratio is not good currently for the long-term investors
Nike is an American multinational corporation that is the world’s largest supplier of athletic shoes and apparel. In 2020 the brand alone was valued in excess of $32 billion, making it the most valuable brand among sports businesses.
Even with the COVID-19 pandemic, the sale of Nike products is going well and the company is running its first e-sports commercial ever with a spot titled “Next Level” airing in China. Nike is an apparel sponsor for China’s most popular e-sports league and the company is supporting lots of other projects in the ongoing pandemic environment.
Analysts expect that the sale will continue to grow and it is important to mention that UBS hiked its price target on Nike to $152. This is above the average Wall Street PT of $140.71 but the risk/reward ratio is not good currently for the long-term investors.
The price of Nike stock has advanced from $85 above $130 since the beginning of May and continues to trade in an uptrend. At its current share price, Nike could be a good short-term investment with solid growth prospects.
I said short- term investment because with a $199B market capitalization this stock is overvalued in my opinion and represents opportunity only for short-term traders. Profitability ratios also confirm this, P/E is above 40 which confirms that this stock is expensive.
The company’s revenue decreased in the 2020 fiscal year to $37.4B from 39.1B in 2019 but the growth projects will ensure that the numbers will be moving up in the future. It is also important to mention that the net income in 2020 was $2.5B while the net income in 2019 was $4.02B.
There are some obvious risks when it comes to trading Nike (NYSE: NKE) shares and the price could weaken in the upcoming weeks.
Technical analysis: The trend line represents a very strong support level
When we take a look at the chart above ( one year period), we can see that the price of this stock has advanced from $60 above $130. As long the price is above this trend line this stock is in the “buy” zone and there is no indication of the trend reversal.
If the price falls on the trend line and if we get a “bullish” confirmation candle it would be a very good entry point for short-term traders who are trading with “stop-loss” and “take profit” orders. The trend line represents a very strong support level, if the price breaks this trend line it would be a very strong “sell” signal and we have an open way to $100.
If the price jumps above $135 it would be a signal to buy Nike stock and we have the open way to $140. Rising above $140 supports the continuation of the bullish trend and the next price target could be located around $150.
Even with the COVID-19 pandemic, the sale of Nike products is going well and analysts expect that the sale will continue to grow. UBS hiked its price target on Nike to $152 but the risk/reward ratio is not good currently for the long-term investors. With a $199B market capitalization, this stock is overvalued in my opinion and maybe it is not the best moment to buy Nike shares.
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