Is it Worth it to Buy Nike Stock?

PUBLISHED Aug 11, 2024, 10:09:34 PM        SHARE

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imgNoah Brody

Is it Worth it to Buy Nike Stock?

Company Overview

Nike Inc. is an American sportswear and footwear company based in Beaverton, Oregon. Founded in 1964 in Eugene Oregon by Phil Knight and Bill Bowerman under the name Blue Ribbon Sports, Nike has grown into the largest athletic wear brand in the world. With a ]market cap of $111.46 billion](https://companiesmarketcap.com/nike/marketcap/), Nike is one of the most recognizable brands in the world.

Nike also operates as the parent company to several other globally recognized brands. Jordan Brand, responsible for $6.59 billion of revenue, was estimated in 2022 to be the second largest sneaker brand in terms of market share. This, along with Converse, another brand owned by Nike, show just how dominant the footwear giant truly is in the sneaker industry.

Strengths and Weaknesses

Nike has several key strengths that factor into their success. They are one of the most recognizable brands in the world, and a Statista survey in 2023 saw 94% of respondents say that they were at least aware of Nike as a brand. This same survey saw 51% say they were loyal to Nike as a brand. This is another of Nike’s key strengths.

Customer Loyalty is one of the biggest strengths of Nike. Their member benefits make people want to continue shopping with them, and has been a key part of their strategy since they introduced NikePlus all the way back in 2005. This originally was a way to offer customers unique discounts, early access to sales, and personalized recommendations. Nike membership is similar in its use even now, 19 years later.

When speaking of the strengths and weaknesses of Nike, we do also have to address the elephant in the room when it comes to the perception of their brand. The poor working conditions of their employees has long been an issue. As recently as last year, they came under fire for not paying owed benefits to Cambodian factory workers. While Nike maintains that they are striving for better working conditions for those in their factories, the perception and reality is that there is still certainly work to be done before treatment is at the level it should be.

Financial Performance

Q1 revenue for Nike was $12.9 billion, an increase of 2% compared to last year. This, along with Nike’s revenue growing every year since 2020 indicates that there may be room for positive growth again. Revenue improving in Q1 and over the year was a solid indicator, but it was not all good news for Nike this year.

Q2 performance appears to have taken a sharp decline. In late June, Nike said they expect mid single digit decreases to revenue, which led to a single-day losses of nearly $20 per share at the end of June. This poor performance has had a noticeable impact on the stock price of Nike, which they have had a difficult time recovering from.

Stock Performance and Outlook

The recent performance for Nike has certainly left something to be desired. After reaching highs of $177.51 per share in November of 2021, Nike’s stock has steadily continued to decrease. With Nike, it is not all bad news, however. With a current price of $72.81, Nike is lower than it has been in over 4 years, but there are some positives to draw. GuruFocus, a website I have used to help determine intrinsic value based on free-cash-flow, placed the intrinsic value of Nike stock at $40.58. The price-to-projected-FCF ratio is better than it has been in quite some time, which could indicate that despite recent poor performance, there is still some potential for Nike stock.

CoinCodex, using Nike’s average growth rates, showed they placed a one-year price target for Nike of $83.06. While this is not to the level Nike’s stock was even earlier this year, there is still time for Nike to correct course if sales do increase in the second half of this year.

Conclusions

While Nike has a reputation and legacy as one of the largest companies in the athletic wear and especially, in the footwear industry, recent performance indicates that there may be some challenges going forward for investors. With stock dropping 59% from their 2021 highs, the past few years have certainly been difficult for Nike and their performance. Some may think this is a good opportunity to buy stock in a large company when their performance is struggling, but given the reports of down earnings and no clear sign that sales will be improving, I think further struggles will be on the horizon for Nike. This is why at present, I do not recommend Nike as a buy at the current price, and think it could actually continue to drop ever farther.

NKE, Buy

Nike, Inc.
Return: 9.96%

NKE, Buy

Return: 9.96%


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