Is Nike Inc. a Buy?

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If you've been waiting for more concrete signs of a growth rebound before buying Nike (NYSE: NKE) stock, then now's the time to take a fresh look at the sports apparel titan. As part of a solid third-quarter earnings report in late March, CEO Mark Parker and his team said they've seen a "significant reversal of trend" in the struggling U.S. market while international geographies like China speed up their expansion pace.

That brightening outlook depends on Nike being able to execute at a level that might be challenging even for the global market leader. It's launching products and platforms at its fastest pace yet, for example, while simultaneously reorganizing its business to cater more directly to consumers. All that disruption carries risk, but also big potential returns to investors who buy the stock today.

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Don't call it a comeback

Nike's latest operating results contained plenty of good news about the business. Sure, the stabilization in the U.S. segment didn't show up in sales results, which dropped 6% in the period compared to a 5% decline in the prior quarter. Rival Under Armour (NYSE: UA) (NYSE: UAA) fared a bit better in its latest report by dipping only 4% in the U.S. market.

However, Nike's inventory position improved dramatically during the quarter, and investors saw that fact reflected in a gross profit margin that slipped by just 0.7% compared to Under Armour's 1.5% decline. Parker and his team said that, after a year of painful tightening, retailer inventory has now dropped far enough, and cycled through enough older products, to create a healthy balance between supply and demand.

Going global

A stable U.S. market accounts for an important but relatively small part of Nike's rebound strategy. After all, the retailer's home country accounts for less than half of global sales (compared to 75% for Under Armour). That's why executives are leaning on international geographies, particularly China, to help deliver most of Nike's sales growth over the next few years.

That strategy is already working: Revenue shot up by 19% in China last quarter to mark an acceleration over the prior quarter's 15% boost. Profits expanded at an even faster pace, which supports management's contention that a shift toward direct-to-consumer sales, while challenging in the short term, will boost profitably over time.

More growth ahead

Without giving specific numbers, management in late March predicted healthy profitability gains in fiscal 2019. The U.S. market should return to modest growth later in the year, too, after improving to a flat result over the next nine months. International markets will likely contribute market-thumping growth, with China leading the way forward.

A few of the biggest risks for investors here include another slowdown in the U.S., a less-than-stellar reception for some of Nike's new product releases, and high costs associated with its shift toward a more direct sales approach.

On the other hand, the retailer's recovery path is getting clearer with each passing quarter. Rather than pointing to a potentially stronger market at some uncertain point in the future, as it did as recently as late December, Nike is showing investors evidence that the recovery is gaining steam today, both in international geographies and at home.

That success helps explain why the stock recently touched all-time highs that shareholders hadn't seen since late 2015. The footwear giant should set more records in the years ahead if its rebound keeps moving according to management's plan.

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Demitrios Kalogeropoulos owns shares of Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.