Image source: Getty Images.
Poor past performance doesn't necessarily mean poor future prospects. Each of these big-brand stocks have been beaten up lately, which could be reason to stay away -- or it might be a great entry point for investors looking for a deal. Here's a look at what has hit Nike, Inc. (NKE -0.18%), Chipotle Mexican Grill (CMG 1.07%), and TripAdvisor (TRIP 2.19%) -- and what each stock might have in store for bargain-hunting investors.
| Company | Market Cap. | Share Price Change, 1 Year | Share Price Change, 2 Year | Share Price Change, 10 Year | P/E |
|---|---|---|---|---|---|
| Nike | $88.8 billion | -15% | 12% | 307% | 24 |
| Chipotle | $12.2 billion | -8% | -40% | 595% | 170 |
| TripAdvisor | $7.6 billion | -22% | -24% | 58%* | 62 |
*TripAdvisor went public in 2012, so its max price change is 5 years instead of 10. P/E = price to earnings ratio. Data source: Yahoo! Finance.
Nike slips, but could be set to run again
Nike shares have moved slightly up so far in 2017, but the stock still fell 19% throughout 2016, making it the worst Dow component for the year. Much of the reason for investor ill will was that Nike has seen slowing sales growth and looks like it could struggle to reach its previously set goal of $50 billion by 2020. Another reason for the poor sentiment on Wall Street is that Nike's gross margin has dropped throughout 2016, down to a multiyear low of 44% in the most recent quarter as the company deals with excess inventory and increased pricing pressure from competitors.
Nike's HyperAdapt self-lacing shoe. Image source: Nike.
It's probably fair that Nike's valuation came a little more in line with its new reality of mid to high-single digit growth on the top line, but its bottom line could still grow faster in the years to come as the company expands faster overseas, decreases its number of styles for sale to focus only on the more profitable areas, and continues to grow its e-commerce business far faster than retail. For long-term investors who believe the company will stay competitive, Nike's beaten-up stock looks like a great bet on renewed growth.
Can Chipotle turn declining comps around?
Another once-loved brand that has lost Wall Street favor in the last two years is Chipotle Mexican Grill. The iconic burrito restaurant that redefined success in modern fast-food chains tanked after reports of E. coli in some of its fresh foods. The ensuing decreased traffic and same-store sales cut the stock nearly in half from its high around $750 in Oct. 2015. Chipotle faces other tough challenges ahead as well, from increased competitive pressure in the quick-serve restaurant space, to President Trump's proposed border tax with Mexico that could make the Mexican restaurant's products more expensive.
The company is working to turn operations around, including the decision in December to let go of one of its two co-CEO's. Revenue for full year 2016 dropped more than 13% over 2015, but for the fourth quarter, grew near 4%. For the month of December specifically, same store sales grew 14.7% year over year. The company also opened 72 new restaurants during the quarter, 240 for the year, a nice growth sign following the struggles of the year before. Still, the company's net income fell more than 76% during Q4, year over year.
Is Chipotle a bargain? By percentage off of its lifetime high, definitely, but by valuation, not quite, as the stock looks very pricey at 170 times earnings even as profit continues to slide sharply amid its turnaround efforts. Chipotle could definitely see things turn a corner and start to grow again in the future, as it seems to be doing the right things now to make its turnaround work and revenue growth in the recent months looks encouraging. Still, investors might be better off waiting on the sidelines until there's more evidence of lasting regrowth that makes it to the bottom line to justify this company's hefty price tag.
TripAdvisor transformation in focus
Finally, there's TripAdvisor, which is down 22% over the last year after the company disappointed investors with a few quarters of lower-than-expected sales and earnings. The brand has struggled in the necessary transition from desktop to mobile -- as its mobile conversions are about 30% of those on desktop -- and with fierce competition already entrenched in this segment.
Image source: TripAdvisor.
TripAdvisor still has plenty of traffic, with average monthly unique visitors up 11% in the most recent quarter, to nearly 400 million, and the company is finding new ways to gain profitability out of that user base. TripAdvisor has historically been a review site that people would use to plan their trip, but then use another company to actually book the trip.
TripAdvisor has tried to change that with its new "instant booking" feature, which helps TripAdvisor take a percentage of the total sale like other online travel agents. The service was expensive to build out, but it has only been live for one year, and it's already showing positive results. Additionally, the company has been investing heavily in making its mobile app better, and now the company reports that 20% of the bookings made there are with a stored credit card -- a good sign that users will be back.
Sometimes stocks get beat-up for a reason, there's no doubt about it. Still, sometimes there are bargains to be found in what looks otherwise like disappointing past performance. These big-brand companies that have had a rough last year or two are likely to continue facing challenges, but for investors with a long-term view, there could be plenty of growth ahead in 2017 and beyond.
