Nike’s stock has been sliding down ever since it reached an all-time high around $68 at the end of last year. The decline has been going on so steadily that the world’s largest footwear maker is now trading near 52-week lows and is down by more than 16% since the start of the year.
One of the primary causal factors in Nike’s downward slide is revenue growth being reported at less-than-expected levels. Sales growth in the last four quarters has been well below ten%, a crucial target growth rate the company needs to hit regularly if it wants to reach its $50 billion sales goal by 2020.
But that hasn’t happened in the last five quarters. In the first quarter of the current fiscal year, Nike had $8.4 billion in sales, of which $3.8 billion came from its North America segment, accounting for 45.2% of overall sales. Therefore, more than half of its overall revenue is subject to currency fluctuations, which have been strong in the last year.
The table above is critical to understand. It explicitly shows why the $50 billion goal might have to be pushed down the road. It also indicates this is not a problem that is going to go away anytime soon. Five quarters of headwinds can take the wind out of any sail, and that is exactly what Nike's stock is going through right now.
Both investors and companies with heavy overseas revenues had better be ready to handle that.
The $50 billion target is still within Nike’s sights, and it showcases its ability to grow fast despite its size. But macroeconomic factors are not that easily countered. In this case, we might see the status quo for several more quarters. There is little doubt Nike will be able to hit and exceed that $50 billion goal, but 2020 may not be the year for it.
On the positive side, lower stock prices and a valuation of 2.6 time sales and 23 times make Nike an attractive stock for long-term investors. For those of the buy-and-hold persuasion, now is the time to cautiously, but strongly, move into a bigger position. The footwear and apparel markets are clearly growing despite slowdowns in economies like China and Brazil.
Nike is still a globally respected brand that has aged well considering the millennials-focused market it is in, and the emergence of new competition in the form of Under Armour will help keep it fit and nimble like the lifestyle it aspires to create.
Don't look at the short-term with this stock —Â or the medium-term, for that matter. Look at the enthusiastic response of the Chinese market to Nike’s products and branding. Look at its non-forex-adjusted growth year on year. Look at the potential that still exists even in the United States.
These are the things that show how strong a company is —Â not the price of its stock at any given moment. Just look at it as an opportunity to own a piece of a company that is practically creating a market for itself no matter where it goes.
Disclosure: I have no position in the stock mentioned above and no intention to initiate a position in the next 72 hours.
