I'm on the wrong side, theoretically, of
a stock gaining positive momentum that
everyone wants to like. What can I do?
IMO, Nike's long-term prospects are less
than what everyone thinks. My
thinking is along Armin's. What barriers
to entry? What's to prevent another
brand to get hot or the shoe mania (which
is a recent phenomenon)
to end. Nike's then stuck with overbuilt
infrastructure and a longer-term
inventory problem. My mailbox is
peppered with people saying, "you've
got a great franchise, 20% ROE, great
management...are you some kind of idiot"
and then they inevitably take the high and
mighty road "I'm a long term investor."
or the low road "I'd take Phil Knight or Buffett over
you anyday."
If everyone thinks this,
I can't stop them. And it will become
a PE 50 stock that makes no sense just
like Gilette or Microsoft or Coke. Today,
nifty fify refers to the PE. Pay anything
for large, liquid consumer brands. Price
does not matter. If it's on your store shelf
or you see it everyday, then it is worth
whatever price you pay, and investors
find confirmation in the high valuations.
This is twisted Buffettology.
My point is price does matter,
and that the stock was in hype-world thanks
to unsustainable growth that everyone overoptimistically
thought would continue forever. Even Nike,
with all their capital spending. So the analysts
bid it to the 50-70's. That hyped world
can return, no doubt.
I think of myself as a value investor, not
a speculator. I see a risky market, a stock
everyone wants to love, and significant
downside short-term that may become
long-term if any of this lasts more
than six months, which no one expects.
That was the other thing I'm getting. "Ok,
write off 4-500 million in inventory and
you still have a great franchise." But
that's like Oracle blaming Asia. There's
more to it than just a one-time event IMO.
I'll wait, thank you. I called Nike
trying to write a positive story. I came
away saying, I can't.
James Clarke has a lot of good arguments
for Nike but he hasn't posted them here.
His was the most intelligent response I
received in a sea of "but but but"
stuttering.
Good Investing,
Mike |
