Those who follow my writing know that I have a few favorites in the stock market. One such favorite is Nike Inc (NYSE:NKE).
After getting its butt kicked for 2 years by adidas AG (ADR)(OTCMKTS:ADDYY), NKE is finally fighting back in a big, big way. The company is putting on the full-court press in the athletic retail industry and is in the midst of developing what CEO Mark Parker calls the most exciting innovation pipeline he has ever seen at Nike (and he’s been there for a long time).
Meanwhile, NKE is also pushing out new products faster than ever while focusing investments on certain global cultural centers (exactly what adidas did two years ago to accelerate its growth trajectory).
All of this, and more, was on full display at Nike’s Investor Day at the end of October.
The big takeaway from Nike’s Investor Day was that the high-growth profile investors have grown accustomed to at NKE isn’t going anyway any time soon. Management expects high single-digit annualized revenue growth over the next 5 years to drive annualized earnings growth in the mid-teens. Mid-teens annualized earnings growth is exactly what the company has achieved over the past 5 years.
But I actually think Nike’s earnings growth over the next 5 years will look better than its growth over the past 5 years.
Why? Renewed basketball market dominance.
Nike’s Young NBA Athlete Portfolio Is Promising
In the basketball sneaker market, its all about finding the next Michael Jordan. This is why these big shoe companies pump millions and millions of dollars into middle school and high school basketball tournaments. Its never too early to start making a prodigious talent fall in love with your brand, because that love might one day translate into hundreds of millions of dollars.
Nike hasn’t found the next Michael Jordan, but they’ve signed the next “big things” in the NBA.
Talk to anyone familiar with the NBA and you’ll come away understanding that there are two prodigious talents in the NBA: the Milwaukee Bucks’ Giannis Antetokounmpo and the Philadelphia 76ers’ Ben Simmons. Both are Nike guys.
Giannis is a 6-foot-11 freak athlete with a 7-foot wingspan, who reminds NBA fans of a young LeBron James. He’s averaging 32 points and 10 rebounds a game, dropped 40 points against James recently, and is the early frontrunner for MVP this year.
He just re-signed with Nike and is set to launch a signature shoe line by 2019. That is huge.
Ben Simmons is a 6-foot-10 all-around talent, who has also drawn comparisons to LeBron James, as well as Magic Johnson, the point guard who dazzled the NBA in the 1980s. He too is putting up big numbers and is the clear favorite to win Rookie of the Year.
He signed a big deal with Nike last year and is set to represent the company for the next 4 years. Again, considering Simmons’ generational talent level, this is a big deal for NKE.
Other young talents who are Nike/Jordan guys include Kawhi Leonard (26 years old and third in MVP odds), Kyrie Irving (25 years old and sixth in MVP odds), Anthony Davis (24 years old and seventh in MVP odds) and Karl-Anthony Towns (21 years old and tied for eighth in MVP odds).
Of course, the Nike/Jordan line-up also include household names like LeBron James (32 years old and second in MVP odds), Kevin Durant (29 years old and fourth in MVP odds) and Russell Westbrook (28 years old and tied for fifth in MVP odds).
All together, then, it looks like Nike’s dominance in the basketball sneaker market will only grow over the next several years. Adidas has signed some big deals as well, but their young-and-rising NBA athlete portfolio pales in comparison to Nike’s. Nike’s 26-and-under NBA athlete portfolio includes arguably the league’s best point guard (Kyrie Irving), the best shooting guard (Kawhi Leonard), the best small forward (Ben Simmons), the best power forward (Giannis Antetokounmpo) and the best center (Karl-Anthony Towns) in that age group.
Bottom Line on NKE Stock
Nike’s dominance in the basketball market has slipped recently thanks to Under Armour Inc (NYSE:UAA) landing Stephen Curry and Adidas landing James Harden.
Looking forward, it looks like Nike will more than make up for that slippage. Nike has all the future faces of the NBA signed up for the next several years.
In other words, Nike’s full-court press is happening everywhere, especially in the all-important basketball market.
That makes NKE stock a buy here and now.
As of this writing, Luke Lango was long NKE.