Finding a great brand that’s growing fast and buying the stock while the company is still small can lead to life-changing returns.
Nike (NYSE:NKE) first started selling athletic shoes under its trademark brand in 1972. The Nike Cortez is considered a classic — a style that the company still sells today.
That first year marked the beginning of an explosive decade of growth, which came amid a brutal bear market for investors. But even a staggering economy in the late 1970s couldn’t slow down the rapid revenue growth Nike was experiencing.
From 1972 through…
Nike’s initial public offering (IPO) year in 1980, revenue climbed from less than $2 million to $269.8 million. Both revenue and profits roughly doubled every year.
Nike had its IPO on Dec. 2, 1980. The stock was first sold to the public at $22 per share and traded in the over-the-counter (OTC) market on the NASDAQ. There have been seven stock splits — all 2-for-1. This means shareholders received two shares for every one share they owned. But unfortunately, a stock split is not free money, as the share price is cut in half so that the total value of the investment stays the same.
If you had bought just one share at the IPO price, you would own 128 shares worth $11,520 based on the current trading price of $90 per share.
But if you had invested $10,000, you would own 58,181 shares. That investment would have a value today of $5,236,290.
Many investors (including myself) might look at that as a pipe dream. Who would be lucky enough to buy a great growth stock at its IPO and make millions? The thing is, Nike was already becoming a household name by 1980. It was a relatively small company by today’s standards, but Nike’s shoes were being worn by famous athletes at major sporting events at the time.
In the early 1980s, Nike had already emerged as a leading supplier of athletic shoes. In the 1981 annual report, the company stated, “Today, Nike shoes have a reputation as being among the most technically innovative shoes on the market.” Nike was the first company to make shoes with full-length cushioned midsoles, lightweight nylon uppers, the unique Waffle-sole, and the patented Air-Sole.
Investors who took the Peter Lynch approach (“invest in what you know”) could have conceivably bought some shares of Nike. The stock actually traded below its IPO price through the first half of 1981. You could have bought shares for as low as $17.50 early that year.
However, I don’t believe discovering Nike and buying around the IPO price would have been the most difficult thing to do. The real challenge for early investors would have been remaining patient during a brutal period for the company in the mid-1980s.
A lesson in patience
By 1985, growth had dramatically slowed down at Nike. Revenue for the fiscal year ending May 31, 1985, grew just 2.9% — a far cry from the explosive growth just a few years earlier. What’s more, profits dropped that year to $10.3 million, down from $40.7 million the previous year.
Nike stock plummeted 66% between 1982 and 1984. In hindsight, it would have been a huge mistake to follow the herd. But based on how Nike founder and CEO Phil Knight described the state of the business back then, it would have seemed like the right choice to…
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