The NIKE, Inc. stock price (NYSE: NKE), the well-known footwear and apparel giant, appears to be a potential opportunity for retail value investors.
Any sense of our hesitation that the reader infers about pulling the trigger now probably emanates from new and expanded blockages in China. Additionally, we and the Feds have our own poignant concerns that the U.S. economy is still precarious.
We know that the rich and the super-rich still spend on luxury goods. Nike is perhaps the most talked about wearable brand among Gen Z and Gen X. Here are Nike’s target markets:
- They are between 15 and 40 years old and are preteens and teenagers.
- Male and female athletes and exercise/outdoor enthusiasts; Nike launched new lines for women, who are a growing segment of the company’s marketing targets.
- Urban centers attract the most marketing attention, whether in the United States, Western Europe or China.
- Nike wants to reach consumers who feel good and want comfort, quality and choice.
- Nike targets people whose lifestyle choices are consistent with the products Nike makes and sells; Nike adds a psychological component to the analysis of consumer spending.
The price has climbed 379% over the past 10 years, topping $179. It plunged 34.50% in the past 12 months to hit $113.87 at the end of last week. At this time, we do not see any specific events on the horizon that warrant major investment by retail value investors. The stock is best characterized by high volatility. Its beta is 1.22, rising and falling more vigorously than the stock market.
If the price drops further to ~$105, we think retail value investors should view this as a moderate buying opportunity. The consensus among analysts is that the average price target for NKE is between $129 and $140 over the next 12 months; we expect an average price target in the range of $135 to near $145. Forecasts call for +40% earnings growth over the next eight quarters.
The online business
We are particularly focused on the company’s commitment to growing sales and profits from online sales. September 22, 2022 is the next scheduled earnings report release date that ends the first quarter of 2023.
NIKE, Inc., together with its subsidiaries, designs, develops, markets, licenses and sells athletic footwear, apparel, equipment and accessories for men, women and children worldwide. The Company’s brands include Jumpman, Converse, Chuck Taylor, All-Star, One Star, Star Chevron and Jack Purcell brands. Nike sells performance gear and various plastic products to other manufacturers. Blue Ribbon Sports, Inc. was its first name in 1964. It became NIKE, Inc. in 1971.
A constant stream of new product releases that are promoted intensely on social media drives growth, at events and by celebrities. For consumers, Nike products have “the look”. The single word “energy” best describes the dynamics of the company.
Management has deeply engaged Nike in digital marketing and sales. Management, I’m told, weighs all the numbers from competing outlets and isn’t afraid to go where the numbers lead.
For example, Nike informed Israeli retailers that the company was not complying with a boycott of Israel, but felt it was in its own interest to cease working with Israeli retailers. Through direct digital sales, especially in small markets, corporate profits and control of high-end products, Nike hopes to strengthen control over marketing and distribution. Nike ended its relationship with Amazon (AMZN) two years earlier.
When Nike announced its fourth quarter 22 results last June, the CEO’s remarks, as reported on Seeking Alpha, assiduously drew attention to the company’s diligence in developing online customer interaction. Online sales grew 18% in FY22 and 24% in Q4; this is all on top of exceptional gains (Q4 ’21 sales +50%) during the pandemic. For Nike, the online experience is about “personalizing the shopping experience”, according to the CEO. Their own 250 stores across the US are focused on connectivity.
E-commerce is growing by around 15% per year. Clothes and shoes are among the best sellers online. Mobile apps are the increasingly used devices of choice. You can’t turn on your phone or computer for a sporting event without seeing a celebrity or influencer wearing Nike clothes and shoes.
This gives a boost to Nike’s online business, which we believe has NKE stock standing on the precipice that seems to be flying higher. The CEO shared the company’s digital activities that add to our positivity about this area of business development at Nike:
We announced in Q2 our partnerships with DICK’S Sporting Goods to connect member accounts. And then we continued in the third quarter with NSP partners in Greater China. And with evident success so far in knowing our Shared Members, our strategy expanded into Q4 to serve our Shared Members one-on-one through connected data…. At the same time, our growing participation in new digital platforms continues to expand access points to NIKE across the digital ecosystem…. Our first co-branded virtual sneaker, the RTFKT by NIKE Dunk Genesis CRYPTOKICKS, continues our connection with an audience that will help shape the future of sport and culture.
Headwinds slow the race
In addition to the concerns we mention above, the situation in China and concerns about consumer spending in the United States, investors are wary that Seeking Alpha is giving NKE a hold rating. The dividend is rated D for safety, growth and yield. The next ex-dividend date is September 1, 22. The yield is only 1.04%, which is below the industry sector of 1.65%.
The thrust is strong
Hedge funds think so too. The funds increased their holdings from September 2020 to 2021. There was some selling in early 2022 when the stock price was higher, but hedge funds increased their holdings by 537,000 shares in the last quarter. The media sentiment we analyzed is 100% bullish, supported by a return on equity of 43.11% over the past 12 months and asset growth of almost 7%.
We do not see any serious risk in owning NKE, except for its volatility. The rate of return to shareholders (127% over 5 years) has been excellent. We believe it has the potential to move forward. Nike’s debt is less than $10 billion as of February. It’s pretty much the same Y/Y. The debt is offset by his $13.5 billion in cash and cash equivalents. Both revenue and profit are reported Y/Y.
Nike continues to emphasize brand building using celebrities and sidekick influencers. Nike is the brand that the younger generation is talking about. Management is above pipeline issues. Management has more control over the distribution and sales of its products; combined with knowledge and commitment to social media and digital marketing revenue and revenue, we hope to make NKE a solid investment potentially fast; but walk before you run.