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Don't call it a comeback!
Published 28 days ago • 4 min read
When I was a kid, LL Cool J had a hit song "Mama said knock you out." The song starts with the lyric, 'Don't call it a comeback; I been here for years."
It's basically a way of saying "I never really left - I've just been here quietly crushing it the whole time."
Last week Nike (NKE) was downgraded by Citi analyst Paul Lejuez after attending a sell-side analyst meeting with new Nike CEO Elliott Hill.
By the way, "sell-side" refers to any entity that publishes or sells analysis for the general public to consume. "Buy-side" refers to entities that keep their information private or in-house and away from the public.
Interestingly, Nike's stock fell 4.3% after the latest downgrade. Management's prediction of a 10% revenue decline for 2025 had already hit the stock hard and seemed baked into the current share price.
Investors' reactions to analysts' reactions to "old news" might be a great buying opportunity, as the market hates uncertainty.
An academic study found that analysts on average take about 15 days to post buy/sell/hold revisions after a news article is published.
They're likely digesting news and analyzing its effect on a company and its stock price, which explains the delay.
But check this out...
Nike's last CEO, John Donahoe, was the head honcho at global consulting firm Bain & Company, auction website company eBay (EBAY), and software company ServiceNow (NOW).
Elliott Hill started at Nike as an intern and, 32 years later, worked his way up to CEO.
I'm not the crispiest potato chip in the bag. However, it would seem Elliott Hill has a deeper appreciation and fundamental understanding of Nike and the athletic equipment and apparel industry than John Donahoe did.
This is exactly why Nike brought Elliott Hill out of retirement in October 2024: to get the company back on track.
Is it any wonder that the tech-minded outsider John Donahoe saw the pandemic as an opportunity to cut out the brick-and-mortar middlemen to go heavy into the higher margin DTC (Direct to Consumer) sales channel?
Nike also lost its focus on its core consumer, the athlete, in favor of the sports-centric fashion apparel consumer.
This cost them shelf and market space, and when the customer returned to the physical stores, Hoka and On running shoes were there to be touched, tried on, and bought.
Yet Nike's revenue is double that of its closest competitor, Adidas (ADDYY), and about even with that of its next five closest competitors... combined!
2024 athletic sportswear sales
In the USA, Nike has a 65% brand preference, with Adidas a close second at 58%.
America's favorite sneaker brands
Nike has solid fundamental strengths, including strong cash flows, a superb AA- credit rating, a pristine balance sheet, and a 40-year dividend growth streak supported by a free cash flow payout ratio of less than 50%.
Source: SimplySafeDividends.com
The Citi downgrade sees a much weaker 2026 for Nike and margin compression.
However, while analysts have a helpful and educated opinion, it's still just a guess about an unknown and unknowable future.
Remember that when we buy a stock, we buy a piece of a real world (we hope!) company, not just a stock price.
I added to our Nike (NKE) position this week, bringing it to 88 shares. As of this writing, we're almost 10% down on it.
I believe that one day, whether six months or six years from now, Nike will be at or over $100/share.
Nike faces several headwinds, including previous mismanagement, China tariffs, sticky inflation, and the seemingly always-present threat of a recession.
Not to mention that Nike will go broke because they went woke.
Please.
They'll be fine, but it will likely take longer than our hyper-short attention span focus initially thought.
That's cool.
I'll patiently be paid growing dividends to wait while Nike finds a bottom and re-aligns the brand with the core fundamentals that made it a global (and interstellar?) behemoth.
So don't call it a comeback, Nike's been here for years...
I'd love for you to reply and share your thoughts about Nike and if you'd ever bought this stock. I'll respond to every response!
😁THANK YOU to all who responded to the last newsletter!!
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