NKE Quick Take

Nike(NKE) has been a long term grower and one of the premier brands in the entire world. However the stock hasn’t been quite as popular in recent months. Shares were trading just shy of $170, but have since fallen over 30% to the $110 price range. Here we will dig in as to why the Swoosh has been backwards to start 2022 and how we see the stock moving forward. 

NKE is a Growth Stock: While NKE to the average person might not come off as a high flying name for a growth portfolio, NKE is a big time grower and should continue to be moving forward. The company has experienced double digit sales growth in 6 of the last 8 years and has grown earnings at over a 10% CAGR (Compound Annual Growth Rate) on a five year basis. With this premium growth has come a premium valuation and share price. The stock averaged a P/E Ratio of over 30x and has been penalized as the Federal Reserve has begun to increase interest rates, leading to shrinking valuations. However we feel with the consistent earnings growth the stock is trading at a discount currently. 

Supply Chains: NKE is a global company in nature, meaning that there are tons of logistics at play and shutdowns have impacts on the supply chain. The company also has had issues with supply in China which is a growing piece of their business. Rising input costs could pressure margins but being a premium brand should allow NKE to pass these costs onto consumers. Despite their supply chain woes which are of concern, NKE has shown better than expected supply chain management which should be a plus for investors. 

Genvest Take-Plenty of Reasons for Optimism: As long-term investors, NKE is a company that we want to own for the next several years if not possibly forever. It has all the characteristics that we like in a business: strong management, growing and sustainable earnings, entrenched competitive position as a market leader and the intangible asset of the brand. The company sees massive growth opportunities in emerging markets, has increased direct to consumer sales (which boosts margins, in turn boosting earnings) to help expand its digital channel and continues to be a household name. Any time we can pick up a company like NKE at a nice discount, we JUST DO IT!