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Is After-Hours Pop in Nike a 'Buy' Signal?

Shares of Nike surged as much as 5% in extended trade after the company posted earnings that blew past expectations.

The results were a welcome relief after Nike missed analysts’ expectations last quarter, the first time that’s happened in five years, as its margins got squeezed by higher costs.

Gross margin fell again this quarter, dropping to 44.3 percent from 47.4 percent in the same period a year earlier as higher product costs continued to nag at the company's bottom line. The company cited higher transportation costs, and higher royalty expenses related to endorsed products among the reasons.

However, the company counter-balanced that negative with a slew of positives.

Amid rising production costs, the company has worked hard to lower production costs. Selling and administrative expenses grew at a slower rate, up 2 percent to $1.8 billion.

Revenue from China jumped 21 percent as emerging markets continued to dominate revenue growth. Overall, emerging market revenue shot up 25 percent during the quarter. Revenue from North America climbed 22 percent. In Western Europe, revenue grew just 5 percent, while revenue from Japan dropped 17 percent due to the impact of the earthquake and other factors.

Future orders for the June to November period came in at $10.3 billion, up 15 percent from the same period a year ago. Much of Nike's revenue comes from emerging markets: A whopping 24 percent of those future orders are from China, while just 14 percent is from North America and 11 percent is from Western Europe.

By the numbers, the sports-gear maker reported its earnings rose to $1.24 a share in its fiscal fourth quarter from $1.06 a year earlier.

Revenue climbed to $5.8 from $5.08 billion a year earlier.

Analysts had expected the company to report earnings of $1.16 a share on revenue of $5.53 billion.

Net income rose 14 percent to $594 million.

Are these earnings a buy signal?

Not according to trader Scott Nations, who cautions investors to keep the after hours gains in perspective. "A lot of traders in Nike were wrong footed," he explained.

"We hadn’t gotten any indication that things were this good – the options activity was horrible with the put/call ratio heavily weighted to the puts. The 12 biggest trades in Nike were put trades."

In other words the stock popped because Street expectations were so wrong, but the gains may not be an all-clear sign.

* You'll find our entire conversation with Scott Nations at the beginning of this video.


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Trader disclosure: On June 27, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Tim Seymour owns (BAC); Tim Seymour owns (AAPL); Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Adami owns (INTC); Terranova Owns (VRTS); Terranova Owns (IBM); Terranova Owns (FCX); Terranova Owns (CVI); Terranova Owns (F); Terranova Owns (AAPL); Terranova Owns (CAT); Terranova Owns (BX); Terranova Owns (HPQ); Terranova Owns (MA); Terranova Owns (PEP); Terranova Owns (MCD); Terranova Owns (JWN); Terranova Owns (TM); Terranova Owns (LULU); Terranova Owns (WFM); Terranova Owns (DAR); Terranova Owns (BJ); Terranova Owns (HAS); Terrnaova owns (DIS); Terranova Owns (XOM); Terranova Is Short (DELL); Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman owns (BAC); Finerman's Firm Owns (JPM) Leap, Finerman owns (JPM); Finerman's Firm owns (CMI), Finnerman is short (CMI); Finerman's firm owns (CAT) calls; Finerman's Firm Is Short (SPY); Finerman's Firm Is Long S&P 500 Puts; Finerman's Firm Is Long Russell 2000 Puts; Weiss owns (TWM); Weiss owns (DE); Weiss owns (CMA); Weiss owns (KEY); Weiss owns (QCOM); Weiss owns (NAV); Weiss owns (EMC); Weiss owns (MSFT); Weiss owns (HK); Weiss owns (COP); Weiss owns (AKAM); Weiss owns (ETP); Weiss owns (NS); Weiss owns (VZ)

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Nick Pope
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CNBC.com with wires.