If you invested $ 10,000 in the Nike IPO, here’s how much money you would have now

Finding a large, rapidly growing brand and buying stocks while the business is still small can lead to life-changing returns.

Nike (NYSE: NKE) began selling athletic shoes under its trademark in 1972. The Nike Cortez is considered a classic – a style the company still sells today.

This first year marked the start of a decade of explosive growth, which occurred amid a brutal bear market for investors. But even a booming economy in the late 1970s couldn’t slow down the rapid revenue growth Nike was enjoying.

From 1972 to Nike initial public offering (IPO) in 1980, revenues increased from less than $ 2 million to $ 269.8 million. Income and profits have roughly doubled every year.

Image source: Nike.

Nike went public on December 2, 1980. The stock was first sold to the public at $ 22 per share and traded on the over-the-counter (OTC) market on the NASDAQ. There were seven Distribution of stocks – all 2 for 1. This means that the shareholders received two shares for each share they owned. But unfortunately, a stock split is not free money because the stock price is cut in half so that the total value of the investment stays the same.

If you had only bought one share at the IPO price, you would own 128 shares worth $ 11,520 based on the current price of $ 90 per share.

But if you had invested $ 10,000, you would own 58,181 shares. This investment would have a value today of $ 5,236,290.

Many investors (myself included) might see this as a pipe dream. Who would have the chance to buy great growth stock when it IPO and make millions? The point is, Nike had already become a household name in 1980. It was a relatively small company by today’s standards, but Nike shoes were worn by famous athletes at major sporting events back then. .

In the early 1980s, Nike had already established itself as one of the main suppliers of sports shoes. In the 1981 annual report, the company stated: “Today, Nike shoes have the reputation of being among the most technically innovative shoes on the market”. Nike were 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’s approach (“invest in what you know”) could have bought shares of Nike. The stock actually traded below its IPO price during the first half of 1981. You could have bought the stock for as little as $ 17.50 at the start of the year.

However, I don’t think finding Nike and buying around the IPO price would have been the hardest thing to do. The real challenge for early investors would have been to remain patient during a brutal period for the company in the mid-1980s.

A lesson in patience

By 1985, growth had slowed considerably at Nike. Revenues for the year ending May 31, 1985 increased only 2.9%, a far cry from the explosive growth of a few years earlier. In addition, profits fell that year to $ 10.3 million, from $ 40.7 million the year before.

Nike stock fell 66% between 1982 and 1984. Looking back, it would have been a huge mistake to follow the herd. But from how Nike founder and CEO Phil Knight described the state of the business at the time, it would have seemed like the right choice to sell and move on.

Here’s what Knight said in his 1984 letter to shareholders:

Several factors have affected us. More importantly, our national footwear market is evolving from athletic looks to a renewed demand for traditional fashion and styles. These changes resulted in inventory losses more than three times that of 1983.

It is fascinating that trends towards “fashion and traditional styles” hurt Nike in the mid-1980s, when today the sneaker giant sees Booming business from trend to sportswear. the athleisure trend essentially bridged the gap between mainstream fashion and sportswear, fueling Nike’s current momentum.

There is something to the idea of ​​never selling a single share of the stocks you buy. The rewards of sticking with this large stock can more than pay off for the losers. Businesses do not operate in a static environment; large companies will find a way to keep growing. Nike certainly did.

A young National Basketball Association (NBA) rookie named Michael Jordan arrived on the scene the same year Knight wrote the words in the 1984 annual report. Nike was set to give a business school lesson for ages on how to effectively market a brand.

But there was an element of luck involved.

Jordan almost signed a shoe deal with Adidas (OTC: ADDYY) (OTC: ADDD.F), but Nike was offering to pay him more than his annual salary as a player with the Chicago Bulls in the NBA. It was a gamble for the swoosh brand, as no one knew Jordan would become an iconic star.

The rest is history. That 2.9% growth rate that Nike experienced in 1985? The Air Jordan line of footwear enjoyed “unprecedented success in the market” when it was launched, and Nike’s revenue soared to $ 2.235 billion in 1990, more than double in just five years.

The Jordan brand now accounts for less than 10% of Nike’s revenue, but the introduction of the Air Jordan in the 1980s breathed new life into a struggling company. It’s hard to imagine where Nike would be today without His Airness.

Over the past decades, Nike has innovated and established itself as one of the major consumer discretionary brands. A truly patient investor would currently earn $ 51,199 per year in dividends on their $ 10,000 investment in Nike stock during the IPO – and that is before factoring in any potential reinvestment from dividends along the way.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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