Down Over 55% From Its Peak, This Blue Chip Stock Is a Bargain

Few three-word slogans have taken the world by storm quite like “Just Do It.” In fact, I probably don’t even have to mention whose slogan it is because that’s how iconic it has become. But, just in case, I’ll give Nike (NKE -1.76%) its due credit for the simplistic brilliance.

Nike is a case study-worthy example of how branding should be done and the benefits that come along with a great brand. It has transcended just sports and turned Nike into a $120 billion company. And while that’s no small feat, it’s not necessarily celebration-worthy when you consider that in November 2021, its valuation was over $280 billion.

Since that peak, Nike’s stock is down around 55%. Some of the decline may be warranted because of bad business moves, but this blue chip stock looks like a bargain for long-term investors, and it all comes down to this chart.

Image source: Statista.

You can’t overstate the power of a brand moat

You don’t become a blue chip stock by accident; it takes years (even decades) of sustained excellence. Once you’ve accomplished it, though, you’re afforded a lot more leeway than other companies — especially when you have a strong brand moat. A brand moat is essentially a competitive advantage solely based on your brand, and that’s what Nike has.

Adidas is Nike’s top competitor and has done well developing its brand over the past decade. However, it doesn’t match up to Nike. Here are the differences in brand value between the two over the past decade.

Table by author based on Statista data. The difference in brand value is Nike minus Adidas. Values rounded down to the nearest hundred million.

There’s something to be said about Nike’s brand value growth over the past few years, regardless of its stock price performance. There’s even more to be said about how it continues to further separate itself from Adidas with each passing year.

So, why has Nike struggled despite its growing brand value?

The simpler answer is that business and stock performance aren’t always correlated to a company’s brand value. Are they connected? Sure. Is it always a direct relationship? Not at all.

Stock-wise, Nike’s struggles over the past few years come down to it misjudging how its customers would buy its products.

Nike thought it could cut out middlemen (retailers) and thrive by selling directly to consumers (D2C). Hoping to cut costs without losing efficiency, it took its products out of several huge stores like Macy’s, Urban Outfitters, DWS, and Dillard’s. Unfortunately, its D2C assumption proved way too optimistic, leaving Nike with lower profit margins, too much inventory, and more headaches.

Nike has since reestablished many of its retail partners, and even its CEO admitted the company got ahead of itself with that strategy.

Nike looks like a bargain for long-term investors

This turnaround won’t happen overnight, but it’s a very fixable issue Nike is actively working on. Even with a sales slump, the company has maintained good financials because of the pricing power its brand affords it.

Nike’s stock is being punished right now, but that puts it in bargain territory for long-term investors who can wait out this restructuring.

Customers won’t completely jump ship on Nike. They may dabble with other companies from time to time, but Nike has developed brand loyalty that should keep consumer demand strong and eventually get the company back on track.