Down more than 55% from its peak, this Blue Chip stock is a bargain

Few three-word slogans have taken the world by storm like “Just do it.” In fact, I probably don’t even need to mention whose catchphrase it is because that’s how it became iconic. But just in case, I will NIKE (NKE -1.65%) its credit for simplistic brilliance.

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

Since that peak, Nike shares have fallen about 55%. Some of the decline can be justified due to 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 do, though, you’re given a lot more freedom than other companies — especially when you have a strong brand. A brand moat is essentially a competitive advantage based solely on your brand, and that’s what Nike has.

sneakers is Nike’s biggest competitor and has developed its brand well over the past decade. However, it’s no match for Nike. Here are the differences in brand value between the two over the last 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 for Nike’s growing brand value in recent years, regardless of its share price performance. There’s even more to say about how he continues to separate himself further 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 do not always correlate with a company’s brand value. Are they connected? Sure. Is it always a direct relationship? Not at all.

In terms of inventory, Nike’s struggles over the past few years boil down to misjudging how its customers would buy its products.

Nike thought they could cut out the middlemen (retailers) and thrive by selling directly to consumers (D2C). Hoping to cut costs without losing efficiency, he removed his products from several giant stores such as Macy’s, Urban Outfitters, DWSand Dillard’s. Unfortunately, his D2C assumption proved far too optimistic, leaving Nike with smaller profit margins, too much inventory, and more headaches.

Nike has since reinstated many of its retail partners, and even its CEO has admitted that the company has gone ahead with this strategy.

Nike looks like a bargain for long-term investors

This change won’t happen overnight, but it’s an issue that Nike is actively working on. Even with declining sales, the company has maintained strong financials due to the pricing power its brand provides.

Nike shares are getting punished right now, but that makes them a bargain for long-term investors who can wait out this restructuring.

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