Professional investors get paid a lot of money to have opinions on stocks. But an industry secret that most people may not realize is that even after exhaustive research, most stocks that professional investors look at go into the "too hard" pile.
Many individual investors may not realize this since Wall Street sell-side analysts always have "buy," "hold," and occasionally "sell" ratings on stocks. However, these are not the analysts that are paid to make actual investment decisions; that instead comes from buy-side analysts. They are the ones doing the research, helping portfolio managers construct their portfolios.
So, if you're looking for the honest answer as to whether you should buy Nike (NKE +1.74%) stock for the long haul, the truthful answer is that the apparel stock squarely falls into the "too hard" pile.
Image source: The Motley Fool.
A struggling iconic brand
Nike is an iconic brand known throughout the world. Its swoosh logo and "Just Do It" slogan have given the company brand equity that most consumer companies dream of. However, it is also a struggling brand trying to recover from years of missteps under its former CEO.
When Nike named John Donahoe as CEO in 2020, it brought in a tech-savvy leader who had helmed both eBay and software giant ServiceNow. However, he had no brand experience and turned his attention to creating a higher-margin business. He de-emphasized product innovation (shifting R&D investments to digital infrastructure) in favor of riding the company's classic shoe businesses, like the Jordan brand, and shunned the wholesale channel to focus on its higher-margin direct-to-consumer (DTC) business. The result was a disaster that Nike's new CEO is still working to fix.
NYSE: NKE
Key Data Points
However, a lot of damage has been done. By cutting ties with long-term retail partners, Nike lost out on space to brands like Hoka, owned by Deckers, and On Running. Meanwhile, competitors caught up with technology, and Nike's classic footwear business became oversaturated. The damage was particularly acute in China as local brands like Anta and Li-Ning emerged, and Nike wasn't meeting consumers where they shop with its DTC strategy.
Why the stock is in the "too hard" pile
Nike has the potential to turn around its business, but it's not an easy process, and tariffs and a trade war with China made things even more difficult. We also don't know how much the company was "overearning" under Donahoe's near-term positive but long-term destructive strategies. Nor do we know if or when Nike is going to regain the customers it lost. So the potential from strong operating momentum and leverage is there, but it's no guarantee. That is why the stock goes into the "too-hard" pile.
