Trading Nike's 30% Surge on Pricing Power Potential
The recent stock market decline has been attributed to a variety of factors. Two fundamental factors include high inflation and rising interest rates.
During times of high inflation, investors try to seek out stocks with strong pricing power – the ability to pass on higher costs to consumers.
Stocks such as Nike could fit this bill, although there are some broader risks if consumer activity falls.
Learn more about Nike stock in this article, what the analysts are forecasting and the latest hedge fund activity.
|Stock:||Nike Inc (Class B)|
|Symbol for Invest.MT5 Account:||NKE|
|Date of Idea:||21 June 2022|
|Time Line:||1 - 6 months|
|Position Size for Invest.MT5 Account:||Max 5%|
- The Invest.MT5 account allows you to buy real stocks and shares from 15 of the largest stock exchanges in the world.
All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing.
Why Trade Nike Stock?
According to research from investment bank UBS, companies with pricing power tend to handle inflationary periods better than others. This is due to the fact they can pass on any higher costs to their customers.
With US inflation soaring to levels not seen since 1982, this factor becomes even more important. There are a variety of ways to measure pricing power. The investment bank focuses on ‘mark up’ or the ability to which a company has priced its product above its own marginal cost.
Interestingly, the firm’s strong pricing power stock screen has outperformed the weak pricing power screen by roughly 20% since 2021. According to UBS, there are 5 names with strong pricing power of which Nike is just one.
Source: CNBC, 21 June 2022
One concern around consumer-related stocks such as Nike is the fact a downturn in consumer spending could affect overall sales. However, as Nike is considered to be the number one sports retailer brand in the world they have room to offer promotions while still protecting the bottom line.
Last month, Nike said that its China business is now starting to improve as supply chain issues in the country start to ease and the recent backlash against Western brands starts to dissipate. Nike’s recent earnings report showed sales fell 8% in China which was better than the expected 12% drop and the 24% drop in the prior quarter.
As China is Nike’s most profitable market an upturn in that region could help to balance out global turnover if the US consumer spending does fall.
Data from the 13 filing reports submitted to the Securities and Exchange Commission (SEC) regulator taken from TipRanks, shows that hedge funds have also started to increase their positions with 537.0k share purchases in the last quarter.
Source: TipRanks, 21 June 2022
Nike Stock Forecast - What do the Analysts Say?
According to analysts polled by TipRanks for a Nike stock forecast in the past 3 months, there are currently 17 buy, 5 hold and 0 sell ratings on the stock. The highest price level for a Nike stock forecast is $185.00 with the lowest price target at $106.00.
The average price target for a Nike stock forecast is $154.14. This represents more than 43% upside from current levels, at the time of writing.
Source: TipRanks, 21 June 2022
An Example Trading Idea for the Nike Stock Price
An example trading idea for the Nike stock forecast could be as follows:
- Buy the stock on a break above $124.00 to allow for current market volatility and upcoming earnings.
- Target just below the average analyst price target at $154.00.
- Keep your risk small at a maximum of 5% of your total account.
- Time Line = 1 – 6 months
- If you buy 10 Nike shares:
- If target is reached = $300.00 potential profit ($154.00 - $124.00 *10 shares).
It’s wise to remember that the share price is unlikely to go up in a straight line and it may even go much further down before it rises, especially considering the recent sell-off in global stock markets.
Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.
Another factor to consider is the commission as these can eat into your profits. With the Admirals Invest.MT5 account you can buy US stocks from $0.02 per share. This means buying 10 shares in Nike stock would result in a commission of $0.20 ($0.02 * 10 shares).
There is a low minimum transaction fee of $1. So, the example trading idea above would result in a commission of just $1 overall!
How to Buy Nike Stock in 4 Steps
With Admirals, you can buy shares in companies like Nike with a low commission of just $0.02 per share and a low minimum commission of just $1 on US stocks.
- Open an account with Admirals to access the Trader’s Room.
- Click on Trade on one of your live or demo accounts to open the web platform.
- Search for Nike at the bottom of the Market Watch window and drag the symbol onto the chart.
- Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.
Source: Admirals MetaTrader 5 Web. Past performance is not a reliable indicator of future results, or future performance.
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Do You See the Nike Stock Price Moving Differently?
Remember that all analytics and trading ideas are based on the personal view and experience of the author.
If you believe there is a higher chance Nike's share price will move lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide.
This means you can trade long and short to potentially profit from rising and falling stock prices. Learn more about CFDs in this How to Trade CFDs article.
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