Your parents wore shoes. In their day, kids wore sneakers. Today, you probably still wear the same sneakers as your kids. It’s because Nike Inc (NYSE:NKE) has transformed them, from a simple cloth-and-rubber concoction to a scientifically-marketed essential. Thus, Nike trades like a good tech stock.
Its market cap of $108 billion is over three times its annual sales of $34 billion. It regularly draws 12% of revenue to the net income line. Its debt level is on par with that of Intel Corporation (NASDAQ:INTC) and it could, at a stroke, pay off all its $3.7 billion of long term debt with the $4.3 billion of cash it had at the end of November.
Nike is the Microsoft Corporation (NASDAQ:MSFT) of the apparel industry. It is only because its value is pushing the envelope of results that just 15 of 36 analysts have it on their buy lists.
The question is, should you?
A Look at Nike Stock
Nike continues to have momentum. The consensus on earnings for the Christmas season, to be reported March 22, is for net income of 52 cents per share on revenue of $8.83 billion. But the “whisper number,” the estimate analysts hope for, and will trade on, is 58 cents per share.
The confidence is the result of knowing Nike can outlast adidas AG (ADR) (OTCMKTS:ADDYY) in its core market, the German company having less than half its market cap. It’s also based on knowing that a weaker dollar means overseas earnings look better, and as a global brand, Nike should see them.
The key to understanding future Nike stock growth is to know that “athletic apparel” is fashion, that not only athletic but cultural heroes wear Nike, and that Nike is on top of the trends.
Credit Suisse sees the Nike stock rising another 20%. Institutional investors are following up with big buys.
No other company is as on top of fashion trends as Nike.
To you, the air crash of Buddy Holly may be the day the music died, but to your grandkids, it’s when Tupac Shakur and the Notorious B.I.G. got shot. Nike knows they want to see Kendrick Lamar, not John Mayer, and this is making for a streetwear boom.
Nike is now serving streetwear with foam-soled shoes that are comfortable as day wear. The only problem? So are its rivals.
Can Nike Stock Be Contained?
You can’t stop Nike, you can only hope to contain it. Can Nike even be contained?
The bear case starts with losing Jason Mayden, the lead designer on its Jordan Line (the Lincoln to Nike’s Ford). Mayden, 37, had been designing the line from his mid-20s, but he suddenly quit to create his own line of kids’ sneakers, called Super Heroic.
It’s in keeping control over talent that Nike is under threat. Fashion can trump technology, talent is at the heart of fashion, and talent must be treated gently. Money alone won’t keep talent. You need a sense of mission.
That’s why critics pore over Nike ads like Kremlinologists. Its ads must be both aspirational and attainable. That’s a hard line to walk.
The Bottom Line on Nike Stock
Nike stock has been a great pick for a long time. If you bought $100 worth 10 years ago, your shares would be worth $354, and you would have enjoyed two stock splits and a constant stream of dividends. That’s why the stock today sells at a premium price to earnings multiple of nearly 29, compared to 17.6 for Apple Inc. (NASDAQ:AAPL).
Nike is one of those stocks you hold for the long haul. When it drops, grab it. Then treat it like say you should treat Bitcoin. Hold On for Dear Life (HODL).
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.
