I don't think many investors question how successful Nike (NKE 0.19%) has been throughout the past few decades. Its powerful brand and in-demand products have been on top of consumers' minds for a long time.
But the stock has underperformed in recent years. Shares of Nike are currently 49% below their all-time high from Nov. 2021. This might present an opportunity to buy the stock on the dip.
Let's take a closer look at why Nike is a forever stock that investors should seriously consider adding to their portfolios.
Favorable characteristics
Nike generated revenue of $51.2 billion in fiscal 2023 (ended May 31). That's a huge sum for sure, and it makes Nike the largest athletic apparel and footwear brand in the world by a long shot. Nike has undoubtedly become a household name among consumers.
But the brand, which is the company's key competitive advantage, has been relevant for a long time. Thanks to the signing of NBA superstar Michael Jordan in the 1980s, Nike found its most valuable athlete endorsement, one that's still paying off today thanks to the ongoing success of the Jordan line. Over the years, Nike has focused on other high-profile endorsement deals, most notably with the likes of LeBron James and Cristiano Ronaldo, to help associate it with top athletes.
Management has made maintaining the brand image a top priority. As part of that focus, the company has meaningfully reduced the number of wholesale accounts it works with so as to not dilute Nike's standing in the minds of consumers. This is the right strategy to support the business well into the future, which is the main trait of a forever stock.
Consumer tastes and preferences are always changing, so it's typical that fashion brands can fall in and out of favor frequently. This makes Nike's decades at the top of the industry so impressive. The fact the brand has been so strong for this long gives me confidence that Nike isn't going to lose the top spot anytime soon.
Something else the leadership team has really emphasized is investing in the company's digital infrastructure to better connect with consumers and speed up product launches. This is exactly what the Consumer Direct Acceleration strategy has aimed to do. To demonstrate how successful this digital focus has been, it's worth pointing out that there were over 500 million visitors to the four Nike mobile apps during the most recent quarter. Moreover, 26% of Nike's sales in fiscal 2023 came from digital channels. A strategy that prioritizes ways to leverage technology should increase the odds of success.
"Our investment in innovation and our digital leadership are fueling broad-based growth across our portfolio of brands, as we create value by serving the future of sport," CEO John Donahoe said in the Q4 2023 earnings press release.
These positive attributes provide support to the argument that Nike can remain relevant for decades more.
Strong financial performance
But Nike obviously wouldn't be where it is today without generating some impressive financial results. In the past five years, for example, revenue and diluted earnings per share (EPS) have risen at compound annual rates of 7% and 23%, respectively. Yes, the business is still working its way through the lasting effects of the coronavirus pandemic, particularly as they relate to supply-chain issues like the company's above-average inventory balance. But that historical financial performance can't be denied.
Looking ahead, management will focus on what has worked in the past, which is to continue designing, manufacturing, and selling high-quality apparel and footwear. Boosting sales in China, which grew 16% in the latest quarter, is also critical.
Wall Street analysts are optimistic. They expect revenue to increase at an annualized pace of 6.9% over the next five years with diluted EPS set to climb at a 14.1% clip. That's an encouraging outlook that should leave investors confident in adding this beaten-down stock to their portfolios.
