The Bull And Bear Cases For Nike

Deutsche Bank recently held a bull versus bear debate with an athletic sector expert. Here’s an overview of the bull and bear cases for Nike Inc NKE.

Bull Case

• The North American business still has another leg up.
• ASP growth remains strong.
• The North American full-price channel is cleared, and the company is working on clearing the factory/value channel as well.
• Shifted emphasis on DTC, apparel and foreign markets has created an unparalleled gross margin expansion opportunity.
• Nike’s business is tied to a growing middle class in emerging markets, and global sports participation is on the rise.
• The stock’s 10.8 percent 2016 pull-back is an opportunity to buy the dip.
• Government policies in China support athletics.

Related Link: Nike Drops Golf Equipment: Here's How You Can Take Advantage

Bear Case

• Competition from Under Armour Inc UA and others in the North American market is heating up.
• ASP growth has slowed in the past year.
• Inventory positions in Greater Europe, Greater China and Japan worsened in Q4.
• Q4 gross margins came up well short of consensus analyst expectations.
• International markets are a long-term growth driver, but the company needs a short-term catalyst to maintain its momentum.
• The stock’s pre-momentum valuation implies more than 20 percent downside ($43–48).
• Economic growth in China is slowing.

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Disclosure: The author holds no position in the stocks mentioned.