NIKE Stock Analysis - Just do('nt) do it? $NKE
Hello folks,
as discussed in the last poll, today comes a short stock analysis on NIKE. This company was able to prevail over the Japanese hentai industry and is therefore highly in the interest of the community.
Before we start as always my disclaimer: This is not investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here and you have your own responsibility towards your investments. So I also assume no liability.
So that we all start from the same place, I present enclosed my table of contents:
NIKE STOCK ANALYSIS
PART 1
- NIKE in numbers, data & facts
- Fundamental analysis on NIKE: NIKE & CHINA - Why NIKE is struggling.
As you can see, it is first about a basic understanding of NIKE. A possible part 2 will depend on the feedback to this stock analysis.
NIKE's product portfolio doesn't really need an introduction - the shoes with the curved rake, which is almost a stylistic icon, are too well known. For those who like it precise: Besides shoes, clothing and equipment, especially the sporty character is one of NIKE's trademarks.
All brands like the own brand NIKE, Jordan, Converse Chuck Taylor, All Star etc. have in common that they have a strong focus on sportiness and the application for sporty purposes like for example basketball shoes. It is precisely this segment that generates the main share of sales with 66.9%, and the associated jersey as part of the clothing with 29.3% is second. The actual equipment with less than 3.5% is far below the intuitive value despite the media presentation as a sports brand. Nevertheless, it is exciting that shoes and apparel are enough to finance 79,100 employees (see (1)).
If we take a closer look at the sales development by business unit, we notice the massive increase in all areas with the exception of Footwear. While all other business units can boast increases of more than 5%, the footwear segment is unfortunately far below this with a growth rate of just 4%. If sales per region are included, the emerging market China in particular has lost massively in importance and has fallen by 8.96% in terms of sales in the year-on-year comparison 2021 to 2022. As a result, this means that the current focus on emerging market China is more of an obstacle than an opportunity for NIKE. This is definitely very important and abundantly critical to see, because China represented up to 47% ..... of the MSCI EMERGING MARKETS until February 2021 (see (1), (2)).
So in essence, China offered thriving growth and currently the Chinese consumer goods sector is priced at a P/E ratio of 40.7. NIKE as an American company is just at:
124.27 / 3.15 = 39.45 times
This means that the American company is priced about as expensive as domestic Chinese companies. Yet the market P/E is just 25.7, which is 65.15% of the valuation of the Chinese consumer goods sector. This is relatively interesting, as it shows a clear proximity to China's 10-year average of 24.9 (see (2), (3), (5)).
If one looks at the sales figures of NIKEs in China, one notices relatively quickly the dreamlike upward parabola - as long as one leaves out 2022. While in 2020 4,638 million USD were generated via shoes, in 2022 it was 5,416 million USD.
Yes, but isn't that good and an increase?
No - it's a decrease. In 2021, $5,748 million could be achieved. What is particularly striking about this is the congruent trend in clothing, which was first at 1,896 (2020), then 2,347 (2021), and then 1,938 (2022) again. We notice: NIKES sales in China are by no means stable or they raise structural questions (cf. (3). (4)).
What is NIKE doing right and wrong here?
NIKE tends to want to be ready here if customers request the products. Simple.
NIKE also tends to accept high inventory levels. Less simple.
NIKE urgently needs(s) a solution for the outflow of pent-up goods. Complex.
Looking at the exact inventory growth rate, NIKE operated warehouses have increased in product volume by 43% compared to 2021. This is not a random problem. In Q2 of the year, statements were made that created general uncertainty among retailers. Despite having heard about the Bullwhip Effect a thousand times in training as well as studies, SC participants make the mistake again here and massively increase their demand volumes. This leads to ever higher inventories along the supply chain, higher demand and volatility, and increased capital commitment. So far, retailers have tended to be stuck with the latter. This tends to be a major problem (see (5), (6), (7), (8)).
In addition to increased inflation, the following points are particularly problematic for NKE's business in and outside China (see (8)):
- Higher transportation costs due to increased oil prices
- Higher logistics costs due to, among other things, increased warehouse operating costs (electronics, heat, etc.)
- Discounts on old stocks
- Covid lockdowns in China
The whole situation is not made any better by the fact that NIKE maintains significant parts of its production chain in China and therefore a) does not sell the goods there and b) gets them produced, as current supply chain bottlenecks are still a problem for Adidas' main competitor. Companies like ANTA or Li Ning as domestic Chinese brands are therefore in an advantageous position and can sell their products much easier (see (8), (9)).
How do sales react(s)?
Not well. Essentially, sales are expected to increase from 2023 to 2025, but they are also expected to decrease in return. This is easier to understand with an example. Simplified: one million € of sales are insignificant in terms of profit if their return is 0%. This means that we have not made a cent of profit with our money. So you could say you have reached the break-even point. But that's all.
At NIKE, you can see exactly that almost perfectly:
2022 Expected sales: 46,710 million USD with 14.3% return on sales
2024 Expected sales: 54,105 million USD with 13.6% return on sales
So we didn't manage to have the profit increase significantly. Anyone who has not been completely asleep in school mathematics will understand that a principle of marginal utility applies here (see (9), (10)).
One USD more output brings me back the same input even if the output is also one USD more or higher. Here, however, the opposite has occurred: Sales increase, but the return on sales falls. For simplicity, I now calculate the value for 2024 if the return on sales is stable. This is quite easy at first on this macro level:
Sales-2024 * Return on Sales-2022 = 54,105 mill. USD * 14.3% = 7,737 mill. USD Return on Sales = Return on Sales_adjusted.
Now before the accountants cry out: Yes this is not 100% correctly calculated, but for simplification purposes we now pretend we can show a book loss via comparative calculation. We calculate
Return real = 54.105 Mill. USD * 13,6% = 7358,28
Return_real - Return_adjusted = -378.72 Mill. USD Return
What does this value mean now?
The value shows that the returns achieved through, among other things, the discount campaigns and lack of sales have generated an accounting negative return of $378.72 million. That's cash that NIKE is missing out on.
In my second part to NIKE I would like to reflect via fundamental analysis the existing situation of NIKE in my estimation and turn in particular to the existing financial challenge!
Do you like NIKE? Have you invested in NIKE or how do you see it? Do you fear or hope the influence of the Chinese market?
At this point I would like to say thank you for 300 YouTube subscribers.
What is this doing on Getquin?
As some of you know, I started on Getquin, did a survey and then started my YouTube channel a few months ago and am learning to make better and better videos from video to video. Without this community, BASS-T Finance would not exist. THANK YOU SO MUCH!
Also feel free to check out my latest video on BAT!:)
Your Bass-T
#nike
#aktienanalyse
#marktcheck
#sport
#china
#emergingmarkets
Sources
(1) https://de.marketscreener.com/kurs/aktie/NIKE-INC-13739/unternehmen/
(2) https://capinside.com/c/emerging-markets-china-als-eigenstaendige-anlageklasse
(3) https://simplywall.st/markets/cn
(4) https://de.statista.com/statistik/daten/studie/250135/umfrage/umsatz-von-nike-in-china/
(7) https://logistikknowhow.com/materialfluss-und-transport/bullwhip-effekt-der-peitscheneffekt/
