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Strategies & Market Trends : Value Investing
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To: S. maltophilia who wrote (78661)12/5/2025 7:13:30 AM
From: Harshu Vyas  Read Replies (1) of 78751
 
I don't see any catalyst that the market doesn't know of.

Management are/were buying back stock but I'm not even sure about that as a capital allocation decision. Unless they're damned sure that earnings will grow at absurd rates in the future. Which, frankly, they don't need to.

I do think that post-stabilisation they have the opportunity to grow in the areas of the world that simply "get richer" and consume more. And I do think their business is more "stable" than typical cyclical companies. Which is why I don't mind paying 33x earnings.

Basically, two years of revenue declines are unheard of in Nike's operating history. Which is why the stock's collapsed. But growth hasn't actually been "that" quick to warrant such a move - it was overpriced to begin with (62% top to current price, 68% top to bottom (so far)).

Less than 7% revenue growth and less than 6% earnings growth between 1996 and 2024. And that translated into pretty insane returns for shareholder even though the stock's cut in half... the power of compounding.

But investors now question whether Nike's at the end of the runway after a couple of strategic missteps. I'd argue that they've only taken over Western countries. And barely, anyway. (How many sneakers does a person own? How many years do they use those sneaker for before replacing them? Will these trends spill over into other countries? What's the first "brand" a person looks at for sneakers?)

And unlike Apple, there's no technological innovation. Shoes travel. Like Coke. Except the margins aren't as impressive. (Tariffs complicate that further. But everyone's in the same boat.)

Basically, I don't think Nike's current earnings aren't representative of the true earning power of the business and the catalyst is that the market starts to see that, too (probably through future earnings releases that I won't track too closely).
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