Is It Too Late To Buy Nike Stock?

Nike's Jordan Retro 5 Metallic Silver basketball shoes. Photo:

Nikeis firing on all cylinders lately, with growth in multiple segments helping overall earnings climb. In the most recent quarter, Nike reported a 16% rise in net income year over year, beating analyst estimates. This led to the third quarter in a row of year-over-year double digit EPS growth. Here are few ways Nike made that happen.

Better than expected marginsThe main reason for this earnings beat was that the company's gross margin rose to 46%, which was better than expected. The increase is due to a sales mix of higher priced sneakers and athletic wear. As Nike continues to push these higher priced items, such as thenew Jordan Retro 5 Metallic Silver -- released in April of this year and priced at a cool $190 -- we should expect margins to stay strong.

Diverse footwear growthDuring the most recent quarter basketball shoe sales jumped nearly 28% over last year's sales. But it's not just Nike-branded athletic shoes showing strong growth: Nike bought Converse back in 2003, and it's turned out to be a great bet. Sales of Converse brand shoes continue to increase, up 33% last quarter over the same period last year, adding $538 million to Nike's overall footwear revenue last quarter of $4.57 billion.

Continued growth in ChinaInternational sales have looked like a mixed bag for Nike recently. While some areas have been waning, such as Japan, others have been growing, even in unexpected places like Western Europe. Overall, international sales accounts for about 54% of Nike's total revenue.

When it comes to China specifically, which by itself brings in about 22% of all international sales, Nike has shown robust growth. Revenue from China in the recent quarterjumped 15% year over year despite unfavorable currency exchange rate swings.

More growth aheadMargins will most likely stay strong or even continue growing as Nike moves its sales mix even more toward better performing items, like higher priced basketball shoes, and focuses on more on direct-to-consumer (DTC) sales such as online sales. While DTC sales are still a small portion of overall revenue now, this segment is growing quickly and boasts high margins by cutting out the middle retailer.

Internationally, Nike still has a lot of room to grow. The recent 15% growth in China might not look incredible, but remember that this comes at a time when the dollar has increased in value against many currencies around the world, making international sales look less impressive when compared to those a year ago.

This is evident in future orders as well. They only appear slightly higher than they were at the same time last year, but when discounting the effect of changes in foreign currency, these future orders look much more impressive -- including 23% growth in future orders in China. The dollar's continuing strength against other currencies could remain a headwind, but assuming it will eventually even out, the overall level of revenue from China will look even more impressive in the quarters to come.

Did you missyourchance with Nike?As a resultof its recent strong performance, Nike's stock price has soared.In the last two years, shares of Nike have climbed more than 60%, finally breaking $100 recently. But now that shares have gone up so much, is it too late to buy Nike?

Even with this recent surge, the stock offers upside based on Nike's ability to continue expanding.Two separate firms recently upgraded Nike, predicting a roughly 15% upside due to the company's likely ability to continue its strong performance. Nike is also still one of the cheaper companies in the industry in price-to-earnings terms, priced at just 28 times earnings compared to the industry average of 49 or compared toUnder Armour's P/E of85.

With its recent success, what looks like growth drivers for continued success in the future, and a price that renders it one of the cheapest companies in the industry even after its recent run up, it certainly doesn't seem too late to play Nike.

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Bradley Seth McNew owns shares of Apple. The Motley Fool recommends Apple, Nike, and Under Armour. The Motley Fool owns shares of Apple, Nike, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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