After disappointing the analysts a couple of weeks ago with their quarterly earnings call, Nike has laced on their shoes again and appears ready to resume its forward progress.
Nike got its start all the way back in 1964, when University of Oregon track athlete Phil Knight and his coach Bill Bowerman got together to make some extra money selling track shoes at the track events they attended. They sold a Japanese brand of shoe out of Knight’s car, and they could not have possibly imagined what this would all lead to.
They still sell shoes, along with a lot of other sports related gear, $36 billion a year worth. Nike makes their own goods now, and the brand is now among the most famous and most popular in the world. Knight himself has amassed a personal fortune of $29 billion along the way, not bad for a guy who was just looking to make a few bucks on the side while going to school.
Their reach expands well beyond just competitive athletes though, which is only a niche market really, and this is what has allowed them to grow to a position of dominance in the industry today. Back when they started making noise in the market, Adidas was king of the hill, but now sit in a distant second place to Nike. People from all parts of the world in all walks of life buy Nike products, and often just because of the company’s brand and reputation.
Reputation is everything with a brand-name apparel company, and many wear the Nike logo proudly for all to see as a status symbol of sorts. This is therefore all about marketing, and Nike’s marketing in this business has been second to none, and their efforts with this over all these years is where their real value lies.
This might not seem all that pertinent to those who own Nike stock, but for longer-term investors at least, this does add a lot of stability to the company and their stock. Nike is less about needing to constantly innovate and re-invent themselves, or fight to stay one step ahead of their competition and not lose big amounts of market share to them if they don’t, it is more about capitalizing on the brand loyalty they have built up over the years, and that itself will keep them pointed in the right direction.
Nike still needs to make good products to keep appealing to their faithful customers and also to attract new ones, but this is the easy part really, when you sit on the throne already that is. Nike clearly does, and would really have to mess things up to lose the crown, something that they have no intention of doing.
Nike has certainly not been without controversy though, and took a hit for operating sweat shops overseas including using child labor. Nike has met these criticisms with making efforts to improve working conditions for its workers. Leveraging very cheap labor in developing countries has been a common practice in the apparel industry and a lot of it still goes on today, and Nike has at least done a good job of dealing with the negative image that this causes.
Nike has relied extensively on celebrity endorsements, and this has no doubt been very influential in their sales, but they have also been quick to cut ties with those who have fallen a little by the wayside, such as Tiger Woods. Interestingly though, they ended up sticking with Colin Kaepernick, known for his kneeling in protest during the National Anthem, even though this caused such a backlash among customers that many experienced their displeasure by burning their Nike gear.
The notable thing about this though is that Nike showed both its boldness and its insight here, and the net result was that they were praised by various organizations for taking a stand, and more importantly, their sales went up. This is a very well-managed company who really have their ears to the ground.
Nike’s Stock Has Also Been a Real Long-Term Winner
As an indication of how well Nike stock has done over the last few years, the S&P 500 is up over 400% during the current 10-year bull market, and Nike hasn’t just kept pace, it has almost doubled this return over this time.
Nike stock did go through a period of doldrums between October 2015 and October 2017, although this was nothing like a big sell-off, it was more a period of being stuck in a range, spending most of this time between $50 and $60. From there though, Nike stock spent a year moving virtually straight up and ended up at $85.55 a share in September 2018.
During the fourth quarter of 2018, Nike did take a hit just like most stocks did, but dropped a little less than the indexes did, and also recovered better once the rally began again. Nike stock hit an all-time high of $88.01 on March 21, and while a disappointing earnings call had them give back almost $6 a share the next day, they have since gained $2 of this back and may be primed for more.
When you get the market adjusting their expectations after an earnings report, you don’t generally see it regain this right away, so for right now at least we should not expect Nike to make it all the way back and start setting new highs again. However, when a stock bounces off of the shock of something like this, and indicates to us right away that they aren’t going to let something like this send them sputtering further downward, that is a good sign for sure.
Nike Still Has a Lot Going For Them
Looking a little further out, Nike still is seen as having a lot going for them, especially in terms of their upcoming new product releases for later in 2019. Late summer and early fall is a big season for companies like this, when kids get ready to return to school, and Nike is seen to be at the ready for this upcoming buying season.
Christopher Svezia of Wedbush is sticking with them, and reiterated his outperform rating for Nike on Wednesday. His price target for the is $96 a share, $11.53 higher than where Nike is currently trading, and $8 above the all-time high the stock traded at a couple of weeks ago.
Svezia is optimistic about both the company’s pipeline and the health of the North American market for them, and also sees them making “a strong push” into penetrating the mid-price shoe market more, to go along with their dominance in the premium market.
Nike is best known for their high quality, and their stock also shares this trait. While market pressures can push any stock down, and investors do want to heed such things, and there are times where we want to seriously consider whether we should be in stocks at all, if we are, Nike has been a good one to be in and every indication is that this will continue into the foreseeable future.