How Five Hundred Bucks and a Handshake Created a Colossal Stock Market Winner
Tuesday, May 14th, 2013
By Mitchell Clark, B.Comm. for Profit Confidential
The company has doubled on the stock market since 2010, and it has more than tripled since 2006.
This kind of stock market performance really is amazing. In just three years, a $12.5-billion company has become a $25.0-billion company.
From Oregon, Bill Bowerman and Phil Night created Blue Ribbon Sports with $500.00 each and a handshake.
In January of 1964, Bowerman and Night ordered 300 pairs of Tiger brand shoes from Onitsuka Inc. of Kobe, Japan for distribution in the U.S. market. Night began selling the shoes out of his Plymouth “Reliant,” and Bowerman began tearing them apart.
Bowerman took an idea from his wife’s waffle iron and created a new running shoe.
Jeff Johnson (a friend and the company’s first employee) came up with the NIKE name in 1971. Shoes were successfully tested and Carolyn Davidson, a graphic design student at Portland State University, created the “swoosh” logo. The company’s first shoes were sold at the U.S. Track & Field Trials held in Eugene, Oregon. The rest, as they say, is history.
As a stock market investment, NIKE has mostly been excellent. The position was flat between 1997 and 2004. The company signed Eldrick “Tiger” Woods in 1996.
In its latest quarter (ended February 28), the company’s comparable sales grew nine percent to $6.2 billion, up solidly from $5.7 billion. Comparable earnings grew from $560 million to $866 million, for a gain of 55%, while earnings from continuing operations were $662 million, up 16% from $569 million.
- Since the beginning of July through to Friday, the small-cap Russell 2000 Index has tumbled 8%.
Historically, the Russell 2000 has led the general market lower.
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Sales growth was strongest in North America (18%), followed by Central and Eastern Europe (16%), then Western Europe (8%). Western Europe’s growth is uncharacteristic compared to other earnings reports from many global brands.
On February 1, 2013, NIKE sold its Cole Haan brand to Apax Partners for $570 million. The deal resulted in a gain on sale of $231 million. But on November 30, 2012, NIKE sold Umbro to Iconix Brand Group for $225 million. This resulted in a loss of $107 million, net of tax.
I consider NIKE to be fully valued on the stock market currently. With a price-to-earnings ratio of approximately 25, the company’s earnings growth combined with its dividend suggests it’s a little pricey.
NIKE is a shining example of how a business can still be very successful during tough times. Arguably, the position held up extremely well on the stock market through the financial crisis and the recession.
Wall Street estimates for the company have been going up for the next quarter, all of 2013, and all of 2014.
Realistically, I wouldn’t say the stock is a buy right now, simply because the stock market is at an all-time record high. It’s very difficult to consider new positions with the stock market sitting so high.
I would say, however, that this company would be worthy of consideration for long-term investors if the stock were to experience a meaningful retrenchment.
While a track record of success certainly cannot predict the future, NIKE’s demonstrated record of innovation and wealth creation still makes it a winner.
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