Nike (NKE 1.94%) and Coca-Cola (KO -0.58%) are two of the most iconic brands in America. Nike is the world’s largest supplier of athletic footwear and apparel, while Coca-Cola is one of the biggest beverage companies.
But over the past three years, Nike’s stock declined by more than 50% while Coca-Cola’s shares advanced nearly 20%. Let’s see why the soda titan outperformed the footwear maker — and whether it’s still the better stock to buy right now.
Image source: Getty Images.
What happened to Nike?
Nike’s revenue rose 5% in fiscal 2022 (which ended in May 2022) and 10% in fiscal 2023. Most of that growth was driven by its Nike Direct division, which sells direct-to-consumer products through its online and brick-and-mortar stores.
But in fiscal 2024, its sales stayed nearly flat. Nike Direct’s revenue, which accounted for 42% of the total, only ticked up 1% as the growth of its brick-and-mortar stores barely offset its declining digital sales. For fiscal 2025, it expects revenue to fall by the mid-single digits. Analysts forecast its earnings to dip 2%.
Nike blames that abrupt slowdown to macro headwinds for its lower-end consumers, soft demand for some of its classic footwear franchises, weak brick-and-mortar sales in China, uneven demand across its other overseas markets, and tough currency headwinds from a strong dollar. However, it could also face increasing competition from higher-growth niche companies like On and Lululemon.
On the bright side, Nike’s gross margin expanded in fiscal 2023 as it sold more premium products to offset its slower sales of lower-margin value products. It also benefited from lower freight and logistics costs. CEO John Donahoe expects fiscal 2025 to be a “transition year” as the company kicks off a “multiyear innovation cycle” with new products and invests in more “consumer-facing activities” to strengthen its brand.
Unfortunately, Nike’s gloomy outlook suggests those tailwinds won’t kick in anytime soon. Its stock might seem historically cheap right now at 20 times forward earnings, but it could continue to trade at that discount until more green shoots appear. Its forward yield of 2% also won’t probably attract any income investors in this high interest rate environment, even though the company has consistently raised its payout annually for 21 consecutive years.
What happened to Coca-Cola?
Coca-Cola might initially seem like a wobbly long-term investment as soda consumption rates decline around the world. But to counter that pressure, it diversified its beverage portfolio with more brands of fruit juices, teas, energy drinks, coffee, bottled water, and even alcoholic drinks. It’s also been updating its flagship sodas with new flavors, healthier versions, and smaller serving sizes to attract new consumers.
Coca-Cola’s organic revenue rose 16% in 2021, 16% in 2022, and 12% in 2023. For 2024, it expects its organic revenue to climb 8%-9%, its comparable EPS to increase 4%-5%, and its comparable currency-neutral EPS to rise 11%-13%.
Coca-Cola generates such stable growth because it owns evergreen brands that are broadly diversified across different global regions. That diversification helped it expand over the past two years even as the Russo-Ukrainian War, Israel-Hamas War, and other geopolitical conflicts disrupted its regional sales. Its brand appeal empowered it to repeatedly raise its prices to counter inflation, while its scale and reach allowed it to push its shipments through extreme weather conditions.
Coca-Cola’s stock still seems reasonably valued at 23 times forward earnings, it pays an attractive forward yield of 3%, and it’s a Dividend King, having raised its payout annually for 62 consecutive years. Those strengths make it a good stock to buy, hold, and forget about for a few more decades.
The better buy: Coca-Cola
Warren Buffett notably kept Coca-Cola as one of Berkshire Hathaway‘s top holdings over the past 36 years — but he sold all of his shares of Nike back in 2010. That’s probably because Coca-Cola generates more consistent growth, has a wider moat, and is more resistant to economic downturns than Nike.
Both of these blue chip stocks should head higher over the long term. But for now, Coca-Cola will remain the better buy until Nike reignites its sales growth again.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Lululemon Athletica, and Nike. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.