Dear Mr. Berko: My 19-year-old daughter is a saver and wants to buy 47 shares of Nike. I don’t know enough about stocks to advise her. What can you tell me about Nike? Would she be making a wise decision? — FS, Kankakee, Ill.
Dear FS: Nike, the Greek goddess of victory, was born in January 1964 as Blue Ribbon Sports. BRS initially operated as a distributor for the Japanese shoemaker Onitsuka Tiger. Its parents were University of Oregon track star Phil Knight and his coach, Bill Bowerman. They changed the company’s name to Nike Inc. in 1971. Then, in December 1980, with $270 million in revenues, Nike came public with 2 million shares at $10. In that same month, Apple also came public, but at $22 a share.
In 1999, Nike (NKE-$53.62) was trading at a split-adjusted price of $48. That year, NKE reported revenues of $9 billion and earnings of $540 million, or 27 cents a share. Also that year, my son asked me about buying 80 shares of NKE in his individual retirement account. I didn’t care for a company that made shoes for basketball players, telling him only a gobemouche would pay $100 for a pair of smelly sneakers. I also explained to him that only chumps, clowns and creeps who badly need peer approval would shell out upward of $180 for a pair of Air Jordans, designed for Nike by Peter Moore, Tinker Hatfield and Bruce Kilgore more than 30 years ago. I told him the NBA would have to expand to 1,000 teams for NKE to generate more revenues. He bought NKE anyhow. And holy moly, I was as wrong as Corrigan. I didn’t realize that so many chumps, clowns and creeps were out there, because NKE may record $34 billion in sales and earnings of $4.5 billion this year. Because NKE has had two 2-for-1 splits since 1999, my son’s $3,900 purchase of 80 shares has morphed into 320 shares worth $17,600.
Oregon-based NKE does business in 190 countries via 365 domestic and 685 international locations. And NKE has over 70,000 proud employees. NKE isn’t just footwear for “sneakerheads.” NKE’s swoosh (Nike paid a designer $35 for this logo in 1971) is emblazoned on men’s and women’s sports and fitness clothing, children’s fashions, toys, games, sports equipment, accessories, totes, sunglasses, backpacks, hoodies, insulated lunch bags, T-shirts, sports watches and game jerseys, including all NFL jerseys. NKE is also Converse and Hurley International, and a recently cooked deal with Amazon may bump revenues.
Wall Street believes NKE’s 2018 revenues will exceed $37 billion. And with record net profit margins (the average shoe costs Nike $27.16 to make) of 12.3 percent, NKE could report earnings of $4.5 billion, or $2.75 a share, which would be up 10 percent from this year’s projected earnings. The growing popularity of the NBA is helping to propel NKE to this growth. Basketball has become enormously popular in Russia, China, South America and Europe. And players such as LeBron James, Kyrie Irving and Kevin Durant, who get $20 million-plus endorsements to toss a ball through a hoop, are eloquent pitchmen for NKE products the globe over.
Perhaps that’s why Merrill Lynch, Edward Jones, Value Line, Morningstar, Morgan Stanley, Wells Fargo, Deutsche Bank, Oppenheimer, Piper Jaffray and other brokerages have “buy” recommendations on Nike. And by 2023, the Street believes that NKE could produce over $50 billion in revenues, with a 13.3 percent net profit margin, and report $6.6 billion in income. If NKE meets those numbers, NKE shares could trade above $100. That could be why hundreds of millions of shares of this blue chip company are owned by Vanguard, BlackRock, Morgan Stanley, Fidelity, The Growth Fund of America, Janus Capital Group, Wellington and State Street.
Tell your daughter to buy 37 shares of NKE at Charles Schwab because the commission will be $5 and they’re good folks with whom to work. Then tell her to keep the stock for the rest of her life and reinvest the niggardly 72-cent dividend, which has increased in each of the past 15 years.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]