Is Zion’s Busted Shoe a Reason to Sell Nike Stock?

Zion Williamson's mishap in Nike shoes will soon blow over

Shares of Nike (NYSE:NKE) fell more than a percent on Thursday after Duke basketball freshman sensation Zion Williamson busted through his Nike shoe and was injured in the first minute of a nationally televised and highly publicized game between number one ranked Duke and number eight ranked UNC on Wednesday night (see the play here). In other words, because one basketball player busted through one shoe, Nike stock lost $2 billion in market value.

In the big picture, that doesn’t add up. To be sure, the busted shoe incident is a big ordeal today. But, it will soon be forgotten, much like other public apparel mishaps incidents in the past.

Very few basketball players, if any, are going to stop wearing Nike basketball shoes. No schools are going to cancel their Nike contracts. The top basketball prospects will still sign with Nike …

In other words, nothing big is going to change, and the financial impact will be minimal and constrained to the next few weeks.

As such, Nike stock shouldn’t shed $2 billion in market cap because of a busted shoe. It’s a tragedy to see a player as great as Zion Williamson get injured. But, it was a fluke accident, and unless Nike basketball shoes start busting left and right, it will have no long-term implication on Nike stock.

Why a Lot Of People Are Making It a Big Deal

Most of the time, a busted shoe doesn’t make headlines. But, this busted shoe was one of the most talked about things on the internet. On Wednesday night, two of the top three trending discussion topics on Twitter (NYSE:TWTR) had to do with the busted shoe.

Why? Because of when it happened. Because of where it happened. Because of to whom it happened.

This wasn’t just any ordinary basketball game … it was arguably college basketball’s best and most hyped regular season game in recent memory. It featured two of the top ten teams in the country, a plethora of future NBA stars and had a prime-time slot on ESPN. Tickets were selling at Super Bowl prices. Former President Barrack Obama was in attendance (he even astutely pointed out that Zion’s shoe had come apart).

The shoe bust didn’t happen to any ordinary basketball player, either. The biggest reason behind all the hype surrounding the game? Zion Williamson, who is regarded by many as the most exciting college basketball player in recent memory and perhaps the best NBA prospect since LeBron James.

In other words, the shoe bust happened to the most hyped college basketball player in recent memory during the first minute of the most hyped regular season college basketball game in recent memory.

Ostensibly, that’s awful publicity for Nike, and that’s why everyone was talking about the busted shoe on Wednesday night. But, in the big picture, this will blow over, and the $2 billion market cap chop in Nike stock will be regained shortly.

Why It Isn’t a Big Deal

In the big picture, Nike is the world’s leading basketball shoe company, and this is an isolated freak accident that could’ve happened in any pair of shoes.

Right now, the internet is blaming Nike because that’s what the internet likes to do — point the finger. Eventually, though, the internet will move on, fingers will stop being pointed and everything will go back to normal.

Here are a few data-points worth sharing:

  • Back in late 2017, Nike’s newly issued NBA jerseys were ripping in NBA games. Everyone thought it was a big deal back then. But, Nike fixed the issue, and now, no one seems to remember that jersey mishap. Instead, Nike’s basketball business is now firing on all cylinders, led by healthy jersey sales.
  • Back in 2015, Eliud Kipchoge won the Berlin Marathon, but the insoles on his Nike shoes fell out while doing so. Since then, most people have forgotten about the incident, and Nike’s running business has grown by leaps and bounds.
  • If you look at a Google search interest chart for Nike in the U.S., you will see that the Zion shoe bust incident didn’t really cause any bump in search interest related to Nike, much unlike the Colin Kaepernick ad campaign did in late 2018.
  • Tennessee, another Nike school and currently top 5 basketball team, issued a statement following the blown out Zion shoe that the incident raised no concerns. The school will remain with Nike, and the players will keep wearing Nike shoes.

Broadly speaking, Zion’s busted shoe incident will not become more than what it is: a freak and tragic accident that could’ve happened in any pair of shoes. It just happened in Nike shoes because probabilities said it had to (Nike owns ~90% of the basketball market).

At the end of the day, Nike still owns the basketball market, and that won’t change because of this incident. Any minor losses in Nike stock will eventually and quickly be recouped.

Bottom Line on NKE Stock

The busted shoe incident may seem like a big deal for Nike stock. But, in the big picture, it won’t become more than what it actually is: a fluke accident. As a fluke accident, it won’t have any major implications for Nike in the basketball market. Nike will remain the leader in that market, and Nike stock will remain a long-term winner.

As of this writing, Luke Lango was long NKE and TWTR.


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/is-zions-busted-shoe-a-reason-to-sell-nike-stock/.

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