Opinions
Stockchase Insights
Nike Inc
NKE-N
DON'T BUY
Jun 28, 2024
Stock price when the opinion was issued
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Trades around 20x PE. Options: implied volatility is over 30, so you're paid twice as much as the broader market. Because the stock has been under pressure for a long time, these options are more expensive than others. Currently, at May $70 puts you can get $3.90, an attractive 5% return if shares stay flat over 3 months.
Added recently around current level of $77. Online push didn't work; it can be part of the business, but not the main part. New CEO has gone back to basics. Huge FCF, minimal debt. Incredibly well positioned. Chance to buy on sale the world's best business in the sector.
Good news is it's the largest in athletic wear and shoes. No debt, tons of firepower. Industry leader. Slow fixes from horrendous mistakes. Looking for earnings improvement in 2026. Worst is over. To bring manufacturing back to the US would be way too expensive for this type of company.
EPS of $1.01 beat estimates of $0.84 and revenues of $12.6B missed estimates of $12.89B. Sales declined 2% year-over-year, but its gross margins expanded 1.1% to 44.7% for the quarter. Management noted it is addressing near-term challenges head-on, and guidance was updated to reflect FY2025 revenue to be down mid-single digits, with the first half falling by high single-digits. Several analysts downgraded the name, but historically NKE has shown resilience during economic downturns.
We certainly do not like the negative momentum here, and from its peak in 2021 it is now at a 55% drawdown. This is a slightly worse drawdown than in 2009, and slightly better than its drawdown from 2000. It is still trading at a fairly high forward P/E of 22.5X, considering the large drawdown, but for a long-term hold, we see this name as having potential to recover eventually. But this process could take several years, and for now we would prefer to wait until its price has settled and found an area of support.
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