Don’t get me wrong. Nike (NYSE:NKE) is a fine company, and arguably the most recognizable sports apparel brand in the world. All things are relative though, and while Nike may be able to muster some more growth ahead, that doesn’t inherently make Nike stock a buy at any price.
The pros largely agree with my concerns by the way, not that the analyst community is always collectively “right” about a company. In this case though, with many of them already having articulated the same things I’m thinking, I’m a little more emboldened to make my point.
Not Much Traction
If you’re reading this then there’s a good chance you already know that adidas essentially embarrassed Nike for the companies’ respective second quarters. Adidas saw overall revenue growth of 10%, versus Nike’s 3% forward-progress in its top line. T
he salt in the wound: Adidas saw 16% revenue growth in the United States, where Nike should be (and needs to be) doing well. It isn’t though. Last quarter’s sales in North America were flat for Nike.
There are couple of major footnotes to add to matter. One of them is simply that, being a bigger company, it’s tougher for Nike to make big strides. The other is, Nike’s quarter ended in May while Adidas’ ended in June. This year’s World Cup (soccer) tournament started in June, certainly inspiring purchases of the gear fans’ favorite footballers were wearing.
Still, aside from the disadvantageous timing of its fiscal quarters, Nike just isn’t positioned to be the growth machine many investors seem to believe hope it is, particularly compared to its competition.
But Nike’s ready to gain serious traction overseas? Maybe, or maybe not.
Earlier this month Nike announced it would be establishing Berlin as one of several overseas growth hubs. It might work too. Interestingly though, Berlin and no other German city for that matter was pegged as a market Adidas sees as worth further cultivating. There may be a good, market-related reason only Adidas sees.
Of course, Adidas (which also owns Reebok) is headquartered in Herzogenaurach, Germany, so to the extent being established in a geographical location matters, Adidas still has an edge on Nike; there’s not much more market there that Adidas could feasibly cultivate for itself.
More than that though, it seems unlikely Nike is going to be able to do much in the way of displacing the proverbial hometown hero. Indeed, Adidas/Reebok have a firm grip on the whole of Europe.
Heard it Before
And for the record, it isn’t as if we haven’t heard the “Nike is penetrating Europe” song before. It was a big theme in 2015 too. The company found some traction there in the meantime, but not much. For Nike’s fiscal year end in May, its European/Middle-Eastern/Africa division saw growth of only 5% for the year… the weakest growth among the company’s non-North-American arms.
It’s also worth mentioning that Under Armour’s recently-ended quarter boasted 31% year-over-year sales growth for its EMEA division. The six-month sales growth rate for Under Armour’s European/Middle-Eastern/Africa arm is a similarly healthy 27%.
Nike’s just missing something.
Bottom Line for Nike Stock
There are some bright spots, to be fair. Nike is crushing it in Latin America and China, sporting 23% and 42% revenue growth there, respectively, last quarter. Those divisions are about as big as Europe is for the company, so it matters.
Under Armour is similarly crushing it in Asia though. Adidas saw 15% growth in Latin America last quarter and 19% revenue growth in Asia, markets that Adidas isn’t really pressing all that hard compared to Nike’s push.
Given the Nike name and the wealth of experience and skill its management team has, if the company was going to fire on all cylinders and keep competitors at bay in all markets, it would have happened by now.
To that end, while the 30% year-to-date gain from Nike stock is exciting, it may also be out of gas.
Despite the optimistic chatter from Nike’s chiefs, analysts aren’t buying it. The stock’s current price of $81.06 is essentially the consensus price target of $81.24. And, the consensus rating right now pegs Nike stock at somewhere squarely between a “Buy” and a “Hold.” Given analysts’ generally-bullish bias, that may as well be a rating of below a “Hold.”
More noteworthy, though, is the fact analysts have made the unusual choice of not pushing the average price target higher in step with the stock’s rise; it’s rather rare for an equity to actually reach the consensus target.
The fact that the pros have failed to up their target despite the current momentum is a clue that they, like me, just don’t get it. There’s simply not enough overall growth in the cards (from here) or value on the table to make Nike an investor’s number-one pick from the athletic wear arena.
In fact, it’s not even clear of any of these names are must-haves, given the severity of the competition.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.