You may think that if the U.S.-China trade war escalates, Nike (NYSE:NKE) stock will be absolutely slammed. If it does, I think you should grab some shares.
While Nike stock has been volatile in 2019, it’s still up 12.4% for the year — trading around $81 on Aug. 14. That gives Nike a market cap of roughly $130 billion, with a price-to-earnings multiple of 32.7 and a minimal 22-cent-per-share dividend yielding just over 1%.
Nike is due to next report earnings Sept. 26, for the quarter ending this month, with 71 cents per share expected on revenue of $10.45 billion. That’s top-line growth of just 5% over last year. If NKE stock is overpriced relative to the market, why aren’t analysts more worried about it?
Nike has one of the best marketing shops in the world; it’s always innovating. One of the latest innovations is the Nike Adventure Club. It’s a subscription shoe service for children ages 2-10. For just $20 per month, kids can get four pairs of kicks a year — with 100 options to choose from.
The service should make Nike a huge online merchant right away, with the opportunity to then sell shoes and other apparel through ongoing relationships. It builds loyalty from the ground up, and solves a big pain point for parents, especially those residing outside big cities, because kids grow so quickly.
Nike has made four technology buys in the last four years, the most recent being a predictive analytics outfit called Celect. The most important may be Invertex, an Israeli outfit bought in April. They created a 3D mobile scanning app called Nike Fit that can now help subscribers get their kids’ shoe sizes right.
Nike also isn’t ignoring its sales channel. It’s working with Foot Locker (NYSE:FL) on Power Stores — community-focused retail locations. Together, Nike and Foot Locker have opened three locations and promoted them with digital ad campaigns honoring Nike designs and offering exclusive gear. Despite a disastrous spring quarter (thanks to the retail apocalypse), Foot Locker stock is surviving and is up 20% over the last two years. FL stock’s dividend yields just under 4%.
About That Trade War
Now, about that trade war.
Unlike some other international product companies, Nike has fabulous control over, and flexibility with, its global supply chain. Wherever it needs manufacturing for a tactical advantage in order to evade tariffs, Nike has suppliers who are ready to act.
While it’s true that Nike still operates 109 manufacturing plants in China, 30 of which are dedicated to producing shoes, the company is moving elsewhere. It now has 105 plants in Vietnam, employing over 460,000 workers — over 40% of Nike’s 1.1 million manufacturing employees.
This data comes from Nike’s Manufacturing Map which is an interactive map of its supply chain. Here you can drill down to plants in 41 countries, 525 plants in all, where it makes its clothes, shoes and accessories. Nike sources materials from 11 different countries. Cambodia is home to 10 apparel plants and Indonesia houses 38 factories total. There are even 42 manufacturing plants in the United States.
The Bottom Line on Nike Stock
Nike stock would be hurt if the trade war gets worse, but it’s resilient enough to keep going. Few companies are better positioned for the online transition. Nike opened a shop at Amazon (NASDAQ:AMZN) via a direct partnership deal in 2017 and treated it as an an outlet store during Amazon’s recent Prime Day. But the company isn’t blind to Amazon’s power. It has a sophisticated direct-to-consumer operation that’s picking up speed, one that promises higher margins than it gets from any retailer.
Nike has delivered a return of over 20% per year over the last five years and the stock is up over 800% since the start of the recovery in 2009. It’s one of those stocks for which any dip is a buying opportunity.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.