Is A Beaten-Down Behemoth A Buy?
The stock market has been charging ahead over the last few months.
Since the end of March, the S&P 500 has surged almost 15% and reached a new all-time high in early June.
But not every stock is doing so well.
Nike (ticker: NKE) is one of the top brands in the apparel industry.
However, its stock price has been getting hammered.
The last time Nike’s stock price was near $40 was in 2014!
Is Nike an opportunity or a falling knife?
Nike’s profit margin of 5% is almost double the margins of other apparel companies.
However, its profit margin was over 12% just a few years ago.
What happened?
Declining revenue, especially in China, is really hurting Nike.
China is Nike’s second-largest market, accounting for about 15% of the company’s total revenue.
Unfortunately, Chinese consumers are switching from Nike to domestic brands like Anta and Li-Ning for their apparel and footwear.
Also, a few years ago, Nike made a big mistake.
To boost margins, Nike pulled its products from many retailers to try to sell directly to consumers.
During COVID, the plan was brilliant as consumers were forced to do much of their shopping online.
Nike’s stock price hit an all-time high in 2021 as the company took market share away from its competitors.
But Nike took a hit when customers started shopping in stores again, and Nike’s products weren’t there.
Luckily, Nike realized its mistake and is bringing its products back to retailers.
Should you buy Nike stock?
Nike’s stock price is incredibly cheap compared to its history.
Its current price-to-sales ratio is only 1.3x, which is at a level not seen since the Great Recession in 2009.
Plus, Nike’s Return on Equity (ROE) of 16%, which is low for the company, is still almost 4x higher than the industry average.
The current price is just too good to pass up.
Nike has the strongest apparel brand according to consulting firm BrandFinance.
It’s going to be choppy, and Nike’s stock price could continue to decline as it moves its products back into retailers.
But one more piece makes me optimistic about Nike.
Last December, Nike CEO Elliott Hill and Apple CEO Tim Cook (who sits on Nike’s board of directors) bought $1 million and $3 million in Nike stock, respectively.
And last April, they each bought another $1 million in Nike stock.
Today’s stock price is lower than when they bought it!
Now seems like a great time to buy some shares in one of the world’s most recognizable companies.
What stock trades are you making in these hot summer months?
Coach Parker
Wealth 360
Category: Stocks
