Oregon-headquartered Nike (NYSE:NKE) is a giant manufacturer of sneakers and other sports apparel. The company is facing problems abroad, but value-focused investors should hoard NKE stock, not run away from it. Of course, it’s not emotionally easy for most people to buy a stock when it’s plunging. If you want to get results like Warren Buffett and Charlie Munger, though, then you should get into the habit of buying while others are selling.
NKE stock offers a perfect example of this. The stock has been as high as $179.10 during the past 12 months. However, it now sits at $112.66 per share. Plus, amazingly, the Nike share price fell 5.9% on May 5 and then declined an additional 3.49% on May 6. Clearly, the market was in a risk-off mood concerning Nike.
Back-to-back declines of that magnitude don’t happen often with NKE stock. Before you jump in and buy the dip, though, it’s important to know what prompted the sell-off. First of all, mega-cap stocks were reeling because traders feared the consequences of the Federal Reserve hiking interest rates this year. Yet, there’s more to the story here, and it involves Nike in particular.
Reportedly, nearly 20% of Nike’s sales are tied to China. Meanwhile, Baird analyst Jonathan Komp cautioned that conditions in China have actually been worse than at the start of the Covid-19 pandemic. Komp observed problems in China, such as retail store closures and reduced traffic in stores that were still open. It’s not hard to see, then, why investors are so skittish about NKE stock now.
So, investors have a choice to make: succumb to their fears, or jump into the trade. After the share-price slide, Nike now has a trailing 12-month price-to-earnings ratio of 29.73. In other words, the stock is trading at a very reasonable valuation. Besides, Nike is still a global business with demonstrated revenue growth. In fact, Nike posted 5% year-over-year revenue acceleration in the company’s most recent quarterly financial report.
There’s always an excuse to panic-sell your NKE stock if you’re looking for one. This time around, it’s problems happening in China. Value investors shouldn’t be seeking excuses, though. Instead, they should consider buying some Nike shares and holding them with conviction.
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