This could be one of the greatest investing setups I have ever seen...
Although the stock rose for nearly eight months, I finally got my entry point a few weeks ago. Here's the story...
In the past 10 years, Nike (NYSE: NKE) has been one of the most dominant retail companies on the planet. Since 2001, the company has grown every year but one, and from 2002 to fiscal 2012, Nike grew its revenue 143%.
As earnings moved up, so did its price per share. Investors who bought shares of this company in mid-2002 have seen a total return of about 300%.
But a little more than two weeks ago, the company hit a roadblock when it announced its fiscal fourth-quarter earnings on June 29.
While the company grew revenue by 12% in the quarter ended March 31, earnings per share dropped 6% compared with the same quarter a year ago. As a result, Nike's stock price fell 9% in a single trading session.
But like all things, the drop in earnings shouldn't be taken at face value.
I worked for IBM (NYSE: IBM) during some of its more difficult years. There was one quarter when the company knew it was going to come up short on its earnings. IBM figured if it was going to miss, it was going to miss big -- and hopefully just once.
Every write-down, charge and new investment was crammed into that quarter. I was getting calls everyday asking if I had anything I needed to write-down. The company even ordered more pens.
To some extent, that appears to be what Nike did in its most recent fiscal fourth quarter.
Nike took a $24 million restructuring charge to streamline its operations in Western Europe. It accelerated its research and development spending on its new digital product line. The company even settled a customs fee from an emerging-market territory related to imports that occurred during the past four fiscal years.
But even when you add all that in, Nike still had a good quarter... just not as good as expected.
It grew revenue in every geography and product line. North American revenue grew 13%. Revenue from Central and Eastern Europe were up 20%. Even in Western Europe -- where debt and austerity are weighing on economies -- Nike's revenue was up 7%. And China may be slowing down, but Nike was still able to grow revenue by 14% in that competitive market.
There is no question Nike is facing some macroeconomic headwinds. Slower economic growth in Western Europe and China will be a challenge for Nike to overcome in the next three to six months.
But I truly believe Nike will navigate the macroeconomic headwinds better than its competitors. It will continue to invest in innovation during slower quarters -- precisely when its competitors have to cut back -- and gain market share.
Nike also has some major catalysts going for it right now.
For one, the 2012 Olympics start this month. Since 1984, the stock has beaten the S&P 500 six out of seven times during the two weeks of the summer games.
And in September, NFL players -- clad in Nike uniforms -- will take to the field for another season. Not only will this mean more jersey sales to fans, but it puts the company's logo in front of some of the biggest audiences in the world. In 2011, nine of the 10 highest-rated TV broadcasts were NFL-related.
Action to Take -- > Nike's recent announcement may have stirred up a lot of investors and analysts, and its share price may not find a lot of love in the next few months. But I want to be in Nike for the long haul. Nike's shares are up modestly since my second purchase, but I still view the recent pullback as an opportunity for investors with a longer time horizon.