Might be an unpopular one. That's ok. But I bought Nike shares today.
Debated it for a long while - when Elroy convinced me (correctly) that Nike at $80/sh was too expensive. 18% lower, I couldn't help but pull the trigger.
At 33x current earnings, with Wall St saying next year won't be better, it goes against every principle I've ever had. (First, break all of the rules.)
And, yeah, it's more "expensive" than "value investor darlings" VFC and LULU - but, realistically, are either of those in the same league as Nike? Who cares about Vans other than skaters/creatives? Who cares about Lululemon other than yoga enthusiasts? They're both niche and both "target" particular demographics. Ok, Vans is trying to create a new audience but it's so tricky to successfully reinvent yourself.
But Nike targets everyone. They're inclusive. They champion and bring out your best self. Talk about iconic advertising and Nike will be up there. (Their newest ad - WHY DO IT? | NIKE)
Is Adidas (half the revenues) even in the same league? Nike isn't just a sneaker company. The more I find out about the business, the more I like it. They have real legacy from the athletes they sponsored (brand identity) to the whole business model of outsourcing manufacturing to Asia (cost advantage).
Ok, both the identity and cost advantage have withered in recent times on the back of competition but can you really compare Nike to ON or Hoka or... Asics?
Consumers hate it currently. It's uncomfortable, overpriced, poor quality... the noise/complaining never stops. And that's what's so valuable. Other brands (Under Armour), people forget about and move on. With Nike, consumers still have a look in the shops, hold the shoe, try it on, think about it... even if they don't buy it. That's insanely valuable. And fixable. The moment Nike get their act together, consumers will snap back.
Maybe management are focusing/talking too much about "sports" right now. Maybe it's wrong. I'll admit I'm not convinced by the whole "focus on innovation/performance" pivot (Under Armour did it in 2015). But I don't think it matters as much as I thought. So long as Nike sell "cool-looking" products, people will buy them.
And about growth. Well, the middle class of the world is growing - India, Southeast Asia, parts of Africa, Latin America - and Nike is an aspirational product. If Coke was the "global drink" Nike is surely the "global shoe." Nothing has the scale or recognisability compared to that iconic swoosh.
To me, a) Nike isn't "earning" what is really should be "normally" (in terms of margins and volume) so the "price" looks way more expensive than it is (I've gotten it to between 20-25x through the cycle earnings) - consider bloated inventory, depressed margins, top line declines - and b) there's enough growth left in the business to make it worthwhile.
Have a lot of thoughts about Nike that I've obviously not typed in a 5 minute "text blurt." May consider a writeup.
To reiterate, this isn't traditional value investing and probably controversial.
But I'm quite comfortable owning Nike. If it fell 50%, I'd buy more. And I think that's the essence of any investing. Investing is more mental than quantitative and if you have genuine faith in your process, I find your temperament improves. And your returns, too, probably.
Not going to buy any other US "brands" or probably any other US stocks. Not finding much at all lol. Even the UK's starting to get trickier. Most of my portfolio is tied up in a £8m nanocap, Hardide plc. My average price is 7.4p but I imagine that's not for this thread :) |
