Read the title of this article. Read it again. Looking at Nike Inc (NYSE:NKE) stock today, I can understand that it is tough to believe that things are actually getting better for the beaten up athletic apparel giant. After all, NKE stock is down more than 4% after an unexciting first quarter earnings report.
But make no mistake. The tide is turning for NKE stock.
And the window to buy this athletic retail giant at an attractive discount is closing.
So I’m swooping in on this dip and gobbling up NKE stock.
Here’s why.
Nike Is On The Rebound
Let’s keep this simple.
It’s no secret that Nike’s biggest headwind over the past several quarters has been adidas AG (ADR) (OTCMKTS:ADDYY). The German athletic apparel company sprung from hardly relevant to the hottest shoe brand in the United States. That has had negative collateral effects for Nike, which has lost significant sneaker market share over the past several quarters.
But things are starting to change. The Adidas trend is starting to die down. The Nike trend is starting to pick back up.
Granted, this trend reversal isn’t in the financial statements yet. Nike just reported its slowest quarterly revenue growth rate in nearly 7 years. But if it were in the sales numbers, NKE stock would be up and ADDYY stock would be down. You’d be late to the party and just chasing the rally.
So let’s stay ahead of the sales numbers. Here are the three reasons why Nike is about to bounce back in a big way.
Firstly, Nike is a global retail powerhouse that doesn’t languish in low-growth mode for very long. A little less than 7 years ago, Nike’s revenue growth slipped. But then the company rattled off several 5%-plus revenue growth quarters in a row. And NKE stock surged from under $25 to above $65. Nike’s revenue growth also slipped in the late 1990s and early 2000s, but the sales growth drought was followed by nearly a decade of robust sales growth.
So don’t expect Nike to be down for long. This company responds to slow growth with prolonged eras of robust growth.
Secondly, Nike is starting to win in its fight against Adidas. The best evidence of this is Google Trends. I’ve put together a chart which looks at the year-over-year growth in search interest of Adidas and Nike. After all, since everything is going online, most shopping trips these days start with a Google search.
The chart tells a simple truth: Adidas was once killing Nike, but that is no longer the case.
Adidas experienced a surge in search interest growth in 2015 and 2016, but that growth has consistently decelerated in 2017. Adidas’ search interest growth is now hugging the flat-line. Meanwhile, Nike’s search interest growth has been down, down, down for a while now. But Nike search interest growth is trending consistently upward for the first time since last 2015.
In short, Nike is fighting back with its Consumer Direct Offense strategy. It’s working, and it will continue to work. The tide is turning.
Thirdly, and perhaps most important, the turning of this tide will be accelerated by legal issues. Adidas has found itself in the heart of a huge controversy which has hit the college basketball world. ESPN’s Darren Rovell says it best in his succinct tweet:
Feds: adidas head of sports marketing Jim Gatto, with others, paid high school players to go to adidas schools, then sign with adidas later.
In other words, maybe all this momentum Adidas was experiencing in the basketball world wasn’t organic or even legal. The controversy certain puts a black “X” on the Adidas brand in the basketball world and almost assuredly puts an end to the the Adidas basketball growth narrative. The club basketball world will be afraid of the Adidas brand. College basketball programs won’t be too eager to sign anymore Adidas sponsorship deals. Same goes for NBA players.
The big winner here? Nike.
Bottom Line on NKE Stock
It’s getting beaten up after a rather unexciting first quarter earnings report. Sales were flat, gross margins eroded, and inventories were up.
But those numbers tell the story of the past 3 months. The story of the next 3-plus months will be much, much different.
The tide is starting to turn in the athletic retail world. Nike is reclaiming its dominance.
That means now is the time to buy NKE stock, before that renewed dominance shows up in the financial statements and the stock rockets higher.
As of this writing, Luke Lango was long NKE.
