Every few years, Nike (NYSE: NKE ) faces a challenge to its dominance in athletic apparel, and every few years it wins the battle. Investors who have used these challenges as opportunities to buy Nike stock at favorable prices have also been winners.
Several years ago, the challenger was Under Armour (NYSE: UA ), which used form-fitting, stretchy clothes to attract consumers. More recently, Adidas' (OTCMKTS: ADDYY ) sneakers seemed to be gaining ground on NKE.
Under Armour crashed after losing distribution channels like Sports Authority to bankruptcy. Now Adidas challenge is failing due to Nike's marketing might.
Over the last year, Nike stock price is up 55%, while Adidas' shares have risen just 4%. Under Armour has begun to recover, but its shares are still down 47% versus two years ago.
Why Investors Who Buy Nike Stock Win
Nike understands the image athletes and athletic wannabes seek to project, and the company continues to help them do so.
The result is slow, steady, profitable growth that's worth paying for.
In Nike's fiscal 2018, which ended in May, the apparel maker reported revenue of $36.4 billion and net income of $1.933 billion. In Nike's first quarter which ended in August, its revenue was $9.95 billion, while its net income came in at $1.09 billion. Its top line increased by 10%, and its profitability is rising. Nike has beaten estimates for the last four quarters.
The current price-earnings ratio of Nike stock looks very high at 63, but that includes a Christmas season for which the company took charges in order to fully exploit the tax cut in later years. The $921 million loss from that quarter won't be repeated. The forward price-earnings ratio of Nike stock, based on analysts' consensus estimate for next year, is 30.
While the stocks of most apparel makers seem to be the victims of fashion, rising high and then falling hard as tastes change, Nike stock price stays strong.
The Latest Challenge Facing Nike Stock
Nike relies heavily on endorsements to boost its branding.
Its best-known deal is with Michael Jordan, the NBA legend it signed to an endorsement out of college in 1984. For Nike, the deal launched a brand that was worth $3 billion in sales by 2017. For Jordan, it launched a fortune that totaled $1.65 billion by 2018.
Not all of Nike's deals are so easy. When quarterback Colin Kaepernick lost his NFL career following his controversial statements and actions, it seemed as though Nike's investment in him was lost. But instead, Nike doubled down on Kaepernick, featuring him in its fall ads. A majority of younger Americans supported Nike's decision, and Nike stock price rocketed to all-time highs.
There was concern that the retirement of legendary co-founder Phil Knight in 2016 would hit the company hard, but it has overcome that challenge as well. Knight recently gave $990 million of NKE stock to charity and Nike stock price, which took a $5 per share hit in the days leading up to the gift, are rising again.
The Bottom Line on Nike Stock
Nike has evolved from an entrepreneurial shoe company into an established institution delivering steady growth, and the "athleisure" trend it spawned has gone global. Its Nike stores, located in dominant shopping malls , make its "athleisure" clothing business as profitable as Lululemon (NASDAQ: LULU ), and its 2017 partnership with Amazon.com (NASDAQ: AMZN ) is proving to be yet another winner.
This fall, Nike opened another new retail store, Shanghai 001. Four stories high and containing over 41,000 square feet of sales floor, Shanghai 001 has rooms where big clients who want to customize their appearance can get one-on-one attention from designers. A similar store is supposed to open later this fall in New York.
Once again,, Nike is winning. Investors who buy NKE stock on dips and hold it over the long run will also be winners.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family , available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn . As of this writing he owned shares in AMZN.
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