What happened to Nike Stock in 2020?

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Nike (NYSE: NKE) the stock ends 2020 with a bang. Its outperformance over S&P500 peaked in the last week of the year, with shareholders eyeing a 40% return versus 15% for the broader market.

Those gains would have seemed impossible when the sportswear giant posted a 40% drop in sales earlier in the year. But this crisis, in retrospect, simply set up one of the biggest rebounds in the market.

Let’s take a look at the factors that have changed the story of Nike stock investing so drastically in 2020.

^SPX given by Y-Charts.

Warning signs

Thanks to a quirk of its fiscal calendar and a huge presence in China, Nike was one of the first global consumer companies to issue a warning signal about the impact of the pandemic. The company had announced 22 consecutive quarters of double-digit sales gains in China, but that streak came to an abrupt end in late February with the spread of COVID-19. Nike’s earnings report at the end of March (showing a 7% rise in global sales) contributed to the stock falling more than 30% as the broader market plunged and store closures hit highs. regions such as Europe and North America.

The worst was yet to come. At the end of June, Nike announced that global sales had fallen 38% in the three months ending in May. Stocks soared, profits tumbled, and the company rushed into the debt market to offset falling cash flow.

A woman holding a yoga pose on a mat with a white brick wall and a window behind her

Image source: Getty Images.

Yet by then the stock had already climbed back into near-positive territory for the year, with investors seeing encouraging signs in its operating results. Nike quickly back to growth in China, for example, which lent weight to management’s prediction that the pandemic represented a significant but temporary setback.

finish strong

Nike’s last quarterly report of the year provided plenty of support for this bullish thesis. The company started to grow again in the US market just two quarters after posting a 46% drop. Traffic remained lower at its outlets, management said in December, but Nike made up for that decline with booming demand on its digital retail platform.

The good news is that the increase in sales was driven by product launches and an accelerated transition to e-commerce. Nike can leverage each of these trends to drive the company forward in 2021 and beyond. In fact, management expects several years of gross profit margin growth as the digital business slowly shifts its wholesale segment.

The first half of 2021 might not look impressive due to excess inventory and buyer traffic restrictions hitting many of Nike’s biggest markets during the holiday season. Rival lululemon athletic warned investors of expect slower growth and some rocky revenue results during the period.

Still, Nike’s business is poised for above-market sales growth, even faster profit gains and an increase cash returns to shareholders — long-term. The past year interrupted each of these trends, but also accelerated positive changes like the shift to e-commerce and Nike’s cost-cutting program.

Of course, Wall Street is pricing a lot of this good news into the stock price rally. But investors shouldn’t let this rally keep them from owning one of the most exciting growth brands in athletics. Nike had a strong 2020 but should reward shareholders who hold out for the next three to five years.

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Demitri Kalogeropoulos owns shares of Nike. The Motley Fool owns stock and endorses Nike. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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