Stock Pick of the Week: Nike Inc (NKE)
Nike’s Past Poor Decisions
Nike is working to fix their strategic blunders made under its previous management team. Previous management did not make the necessary investments in shoe innovation to stay ahead of the competition and they decided to try direct to consumer to cut out the brick and mortar middle man. These actions failed miserably causing Nike to lose market share to its long-time rivals like Adidas and New Balance, and newer entrants like Hoka and On Running.
Nike offers one of the most attractive risk/reward opportunities in today’s market.
The new CEO Elliott Hill is making rapid progress in turning around the business and the market has been slow to catch on. Hill has completely overhauled upper management replacing 12 of 15 team members.
The new leadership is going back to the company's roots with the simple formula that made it great in the first place. They are focused on research and development to become the shoe innovation leaders once again with new designs and materials. The Alphafly 3 carbon fiber running shoe has received rave reviews for its comfortable and lightweight design.
The company is also returning to a marketing machine by increasing the budget 9% to 4.7 billion dollars in 2025. The new designs and marketing budget has increased sales by mid-single digits in the latest quarter, indicating a reacceleration in brand momentum after several years of flatlining sales.
Nike has also returned aggressively to brick and mortar shelf space. They have the most shelf space in Food Locker (the industry leader in athletic shoe sales). They will also have great shelf space in Dick’s Sporting Goods assuming the Foot Locker merger finalizes.
Hill is also working on fixing the inventory bloat by aggressively discounting stale merchandise so that the company's capital can be committed to their best selling shoes. Hill would like the inventory supply to be close to 100 days.
Nike is a Great Buy
The company turnaround could see revenue increases from $46 billion currently to $60 billion over the next four years. With profit margins returning to 13%, $8 billion of net income by 2029 and earnings per share (EPS) of $7 by 2029 the share price could be as high as $175 (assuming 25x price to earnings). From the current share price of $75 your potential return is 24% annually.
Today presents a great value to pick up shares of NKE.
To your success,
Thomas Moore
Disclosure: The author will purchase shares of NKE within 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
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Man I read this and I feel the opportunity in the air with Nike. The only thing is that I have spawn already too much the number of assets in my portfolio, but keep them coming. I am sure some gems will find themselves to us.
I am debating between buying a leap call option verse just DCA $100 monthly. I may do both haha.
Good point. Lately I would simply pick some stocks (like United Health) and simply GO BIG on them. But this way I cannot do moves many times, thus DCA could be another option on that.
Also, after I take some crypto profit I want to do also a small cap portfolio of around 10 assets and $10k in total. That will be quite challenging and I hope to make the right choices. But I intend to do the moves in bear market, maybe next year or so.
I like that approach. Large caps to be consistent and small caps to potentially outperform.
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