Should you buy Nike stock on the post earnings weakness?

Nike Inc (NYSE: NKE) is trading down in after-hours even though its reported market-beating results for its third financial quarter.

Nike stock down on a decline in gross margins

The stock is taking a hit because margins remained a problem in the recent quarter.

Nike saw its gross margin contract by 330 basis points on higher production and freight related costs, currency headwinds, and excessive markdowns. Still, Oppenheimer’s Brian Nagel said on CNBC’s “Closing Bell: Overtime”:

Nike has been very good at telegraphing weaker gross margins as it cleared excess inventories. In Q3, inventories up 16%. If you go back to Q2, that was great than 40%. Nike has done a very good job of getting inventories under control.

The footwear company now expects its full-year gross margins to be down 2.5%. For the year, Nike stock is up only 4.0% at writing.

Is it worth investing in Nike stock?

On the flip side, Nike now forecasts a high-single-digit growth in revenue for its fiscal 2023. Its previous guidance was a mid-single-digit growth instead. Nagel added:

Results on the headline were incredible. Underlying dynamics in China are definitely getting better.

The Oppenheimer analyst reiterated his “outperform” rating on the Nike stock today. His $150 price target suggests about a 20% upside from here.

Nike third-quarter earnings snapshot

• Earned $1.24 billion versus the year-ago $1.40 billion
• Per-share earnings also declined from 87 cents to 79 cents
• Revenue climbed 14% year-over-year to $12.39 billion
• Consensus was 56 cents a share on $11.48 billion revenue

Greater China revenue (adjusted) went up 1.0% in Q3 Nike will end its current financial year with leaner inventory than previously expected, as per the earnings press release.