As stocks go, Nike (NYSE:NKE) continues to be one of the most consistent performers in the S&P 500. Since May 23, 2014, Nike stock has more than doubled from $37.92 to $83.64 as of the May 23 close. Additionally, the five-year total return for NKE stock is 18.6%, 764 basis points better than the index.
Source: rodrigofranca via Flickr
The athletic-apparel maker is a paragon of consistency, both financially and in the markets. Therefore, I don’t think it’s a stretch to wonder if the Nike stock price can double over the next five years like it did the five just passed.
StockTwits founder Howard Lindzon has held Nike stock in his “8 to 80” portfolio for several years. These are stocks that people want to own because they also use their products and services regularly. I call that “Everyday Investing.” It’s a concept that I modeled after Peter Lynch’s theory that you should invest in what you know.
Admittedly, this concept isn’t 100% foolproof, as the case of General Electric (NYSE:GE) demonstrated. But Nike is a much different company with fewer moving parts than the down-on-its-luck industrial conglomerate.
In my opinion, NKE stock has a great shot at doubling to $185 by May 23, 2024. But to do so, Nike must capture the women’s market if it wants to get there. Here’s why:
Lululemon vs. Nike
If anyone can take down Lululemon (NASDAQ:LULU), the leader in women’s athletic apparel, it would have to be Nike.
InvestorPlace contributor Luke Lango recently highlighted the women’s market as an important goal for the company on its way to $100 and beyond.
“At the current moment, Nike’s revenues are dominated by the men’s segment. The women’s business accounts for less than a quarter of its total revenues,” Lango wrote May 8. “But the global women’s athletic apparel and footwear market is 50% larger than the men’s athletic apparel and footwear market.”
Luke recommended an April CNBC article by Lauren Thomas. I’d second that recommendation. It’s well written and provides the reader with a good understanding of Nike’s overall business.
Nike had $36.4 billion in revenue in 2018. Of that, $24.0 billion was wholesale to external customers, $10.4 billion was from Nike’s brick-and-mortar and online stores, while the remainder was primarily from Converse.
Of the $30.3 billion in wholesale (it includes $6.3 billion to Nike Direct), $6.9 billion was women’s, 22.8% of the company’s overall 2018 revenue.
In April, Lululemon stated that it wants to double its men’s revenue by 2023. In 2018, the men’s business accounted for 20% of LULU’s overall revenue of $3.3 billion. That means that Lululemon’s women’s business generated $2.6 billion in 2018 with men delivering $660 million.
Here’s what is most surprising about Lululemon: it skyrocketed from zero penetration in the men’s market to 20% in just six years. Considering it’s about one-fifth the size of Nike, it’s a very impressive stat.
If I owned Nike stock, I’d be concerned that Lululemon will soon generate more revenue from the men’s market as a percentage of its overall sales than NKE does from the women’s market.
How Does Nike Stock Get to $185?
Nike has never been very good at acquisitions.
It couldn’t do much with Bauer in hockey. It hasn’t done much with Converse in streetwear, and it failed to do much with Cole Haan in the shoe market.
However, there’s a first time for everything. If management wants NKE stock to hit $185 by May 2024, they have a quick solution: acquire Lululemon.
Today, LULU could buy Under Armour, but why would it? It’s got growing women’s and men’s markets, strong digital sales, and increasing business in consumer-friendly Asia.
Nike likely wouldn’t pull the trigger, given its poor history. But it should set past disappointments aside because Lululemon continues to demonstrate why it’s a leader in athletic wear.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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