Nike Inc (NKE) Stock: Investors Mull at What Price is It a Long-Term Buy?

Bret Kenwell

Updated Wed, Oct 11, 2017, 2:00 AM

This year hasn’t been overwhelmingly positive for Nike Inc (NYSE:NKE). There’s been an obvious sentiment shift in retail that has weighed on Nike, but hasn’t crushed it. Up only 1.4% so far this year, many investors have been wondering when NKE stock becomes a buy?

Nike Inc (NKE) Stock: Investors Mull at What Price is It a Long-Term Buy?

Source: Alessio Jacona via Flickr

In truth, investors should be thankful Nike is positive on the year, even with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) roaring to new all-time highs on a regular basis. Why? Because peers like Under Armour Inc (NYSE:UA, NYSE:UAA), Foot Locker, Inc. (NYSE:FL) and Finish Line Inc (NASDAQ:FINL) have been slaughtered, falling 40%, 53% and 41% this year, respectively.

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So, while all these other guys are getting crushed, why not Nike? Here’s my take on retail:

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The shift to e-commerce is causing a lot of turmoil throughout the sector. While online sales are a mostly negative phenomenon for retailers, one could argue that it’s good for brands, particularly strong brands. So while there will be a lot of ups-and-downs, the strongest brands will survive and, eventually, thrive in the new world of retail. Nike is one of those brands and it’s why I think today’s prices offer long-term investors a bargain.

What adidas AG (ADR) (OTCMKTS:ADDYY) is doing to Nike is somewhat terrifying in a way. I won’t get into all of the details (I covered them previously), but some of them are hard to ignore. In August, Nike’s Jordan line saw sales tumble about 30%, as Adidas became the second-most-popular shoe. Nike still holds the top spot, but Adidas is making up ground. Nike had 52 of the top 60 sneakers in the market last year. Now they have 35 of the favorites , while Adidas has gone from two models in the top 60 to 24.

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Yet, even with the loss in popularity, Nike shares are only flat. There’s no telling when Nike and/or Jordan will regain their mojo. But when it happens, NKE stock will get some juice and head higher.

Why Nike Will Survive

For one, Nike is focusing on its direct-to-consumer (DTC) business. The DTC business is coming on strong, and even though Nike has a small physical retail footprint, it opens the door to a strong e-commerce business as well. Piper Jaffray surveys teens every six months to find their preference on brands ranging from restaurants to retail. Some of the more notable points include:

Nike was the top clothing company, taking 31% of the votes and beating out the next best, American Eagle Outfitters (NYSE:AEO) with 10%.
Top footwear also belongs to Nike, which took 52% of votes and beat third-place Adidas with 8%.
(This one is interesting), as Nike came in second place for top shopping sites, with 5% of votes. The other 43% when to — you guessed it — Amazon.com, Inc. (NASDAQ:AMZN).

This leads to my second point. While Nike is focusing on its DTC business and has become teens’ No. 2 website to shop, there’s still an elephant in the room and its name is Amazon. NKE and AMZN recently began working together. Two great brands on one platform can benefit both companies. However, CEO Mark Parker was pretty coy about the developments so far, offering:

“I will say that pilot that we’ve been running with Amazon is still in the early stages. And what we’ve seen so far is progressing actually quite well, excited about the possibilities going forward.”

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There are definitely concerns over Nike. But again, for long-term investors, I think they willS see Nike’s strong brand win out. For as troubling as the sales side of things has been — three revenue beats, one in-line result and four misses in the last eight quarters — Nike has beat earnings estimates for at least 15 straight quarters.

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As much as it would pain me (as I am long), it would be constructive to see NKE stock drop to $48, find support and then rally. Between $50 and $51, NKE stock has found support a number of times. So starting a new position today could be advantageous for long-term investors, while adding on a possible dip to $48.

I can’t tell you what NKE stock will do by year’s end or in the next 12 months. But I know Nike will still be dominant in five years, in 10 years, and in 20 years. That’s one reason I’m confident in a holding a long position today.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.