Nike Inc (NYSE:NKE) may be seeing a boom from a trend, but Nike stock still is a little precarious.
It wasn’t too long ago that ‘athleisure’ wasn’t even a made-up word. Lululemon Athletica inc.(NASDAQ:LULU) arguably ushered the idea in, as its yoga attire became wearable outside, but it didn’t take long for the movement to wrap up athletic apparel brands like Nike and Under Armour Inc (NYSE:UAA, NYSE:UA) as well.
While the athleisure phenomenon has gotten a little long in the tooth, it’s one of those practical fads that isn’t necessarily destined to end with a bang anytime soon. On the flip side, upgrading Nike stock now on the assumption that the athleisure trend remains impressively resilient might be a bit of a misguided measure.
Nike Stock Upgraded
HSBC analyst Erwan Rambourg made the call, upgrading Nike stock to a “Buy” last week because:
“Health is one of the key concerns of consumers for the future and whether it’s actually practicing sports or wearing sporting goods because it makes you feel better about yourself, we do not believe the appetite for those products is about to wane.”
Initially, the logic makes sense. After a second read-through of his bullish thesis on Nike stock, however, questions surface.
Chief among them? If wearing athletic apparel first and foremost makes you “feel better about yourself,” can it actually be true that “health is one of the key concerns of consumers” going forward? The answer to the question is a little fuzzy.
Granted, it’s easy to pick apart word-choices that in retrospect might make for a less-than-watertight argument. Three years ago when the athletic apparel craze was most frenzied, nobody would have batted an eye at such a comment. After all, analysts have to say something. It’s not always easy to explain a feeling with words.
In light of other recent comments about the athleisure trend though, the if/then corollaries have to be bulletproof for Nike stock to hold up. This upgrade doesn’t exactly stand up to the headwinds apparently blowing all around it.
Wells Fargo analyst Tom Nikic had the guts to be one of the first to say it late last year, explaining:
“The athletic apparel/footwear space was one of the strongest sub-sectors in our group coming out of the recession; but after an impressive multi-year growth cycle, we see several areas for concern that are not only likely weighing on the industry, but also have the potential to accelerate.”
In the meantime we’ve learned that athletic wear sales in the United States only grew 2% from 2016’s levels in 2017, with denim sales (of all things) perking up again.
Under Armour, Lululemon, Nike and adidas AG (ADR) (OTCMKTS:ADDYY) are all still growing their top lines, mind you, and for the most part are growing their bottom lines.